Suppose that your local government provides drinking water and charges a 10 cent per gallon fee. Explain whether or not the drinking water is a public good.
What will be an ideal response?
A good is defined as a public good when the consumption of the good is both nonrival and nonexcludable. Even if drinking water is provided by a local government, it is a publicly provided private good not only because it is rival in consumption but also because it is excludable (the supply of drinking water will be cut off if you do not pay).
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Elaborate on your answer to the previous question by using demand curves. For which good does demand change and for which good does the quantity demanded change?
What will be an ideal response?
Refer to above figure in which negative externality existed. The government imposes a $1.00 pollution tax on the producer. Supply shifts leftward
A) This tax will be shifted entirely to the consumer. B) This tax will be borne entirely by the producer. C) The amount of the tax shifted to the consumer depends on the consumer's reaction. D) The tax will be divided into equal amounts between consumer and producer.
If the annual interest rate remains unchanged over the next two years, and the present value of $120 to be received one year from now is $100, what will $100 be worth two years from now?
A) $120 B) $140 C) $144 D) Uncertain. We need to know the interest rate.
Which of the following would be most likely to cause an outward shift of the demand curve for electricity?
a. a decrease in the price of electricity b. an increase in the price of air conditioners c. an increase in the price of heating oil d. a decrease in the price of natural gas