What are Pigouvian taxes and subsidies? How do governments decide when to levy a tax or provide a subsidy?
What will be an ideal response?
Governments address externalities through Pigouvian taxes or subsidies, named after the economist Arthur Pigou. Taxes and subsidies are levied to ensure that firms internalize externalities. Consider a good with negative externalities. The marginal social cost of the good is greater than its marginal private cost. The government will levy a tax on the good, which is equal to the external cost of the good. This tax makes firms take into account the external damage from the good when it makes its production decisions. Similarly, for a good with positive externalities, the government provides a subsidy to a firm or consumer that is equal to the external benefits from the good. The Pigouvian subsidy raises the individual's marginal benefits of consumption by an amount equal to the external benefits its consumption causes, exactly aligning the individual's benefits with society's benefits.
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If the dollar depreciates against the yen, U.S. goods sold in ________ would become less expensive and Japanese goods sold in ________ would become more expensive
A) the United States; the United States B) Japan; Japan C) the United States; Japan D) Japan; the United States
Wanda takes $3,000 from her savings account that pays 5 percent interest per year and uses the funds to purchase a computer for $3,000 for her business. At the end of the year the computer is worth $2,000
Wanda pays an implicit rental rate of ________ a year. A) $1,150 B) $4,000 C) $3,150 D) zero
If price elasticity is greater than one, then demand is said to be elastic
Indicate whether the statement is true or false
Government assistance programs in the United States a. have expanded significantly since their establishment in 1964. b. consist mainly of cash payments. c. are funded entirely by the federal government. d. have typically required beneficiaries to participate in community work or job training programs
e. are primarily funded by state governments.