There are 10 families in a neighborhood that are affected by noise pollution from a local factory. The noise could be reduced if the company spent $5,000 on technological improvements. The company agrees to make these improvements if the affected families contribute the $5,000. Since there are no legal restrictions governing the factory's noise, the negotiations fail. This outcome is an example of the
A. free-rider problem.
B. drop-in-the-bucket problem.
C. problem that arises when property rights are not defined.
D. Coase theorem.
Answer: C
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A hard peg may be achieved by all of the following except
A) following the rules of the Bretton Woods Agreement. B) dollarization. C) establishing a currency board. D) mutual agreements establishing a common currency.
If input prices are constant, a firm with increasing returns to scale can expect
A) costs to double as output doubles. B) costs to more than double as output doubles. C) costs to go up less than double as output doubles. D) to hire more and more labor for a given amount of capital, since marginal product increases. E) to never reach the point where the marginal product of labor is equal to the wage.
The budget deficit or surplus in any given year, adjusted for what it would have been if the economy were producing at potential GDP, is called
a. an automatic stabilizer. b. a discretionary fiscal policy. c. a standardized employment budget. d. a countercyclical employment budget.
The law of diminishing returns means that
a. total output will increase, but at a diminishing rate b. marginal product will increase, but at a diminishing rate c. total cost will increase, but at a diminishing rate d. total revenue will increase, but at an increasing rate e. total output will decrease