Explain why an external cost leads to an over-allocation of resources to the production of a good
What will be an ideal response?
An external cost is the cost associated with the production of a good that is not borne by the seller. Rather, the cost is borne by third parties. The seller calculates the amount of the good to produce by comparing private benefits and costs. By ignoring the external costs, the seller produces more of the good than would be the case if the seller actually had to bear the full costs of production. Hence, the seller overallocates resources to the production of the good.
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Assume that the budget constraint in the figure below is: P E E + P A A = I, where I is total income and P E is the price of education and P A is the price of all other goods. If U(E,A) = A + E, P E = 2, P A = 1, and I = 10. If the price of education drops to 1, how much of the two goods are consumed now?
At the profit-maximizing level of output, marginal profit
A) is also maximized. B) is zero. C) is positive. D) is increasing. E) may be positive, negative or zero.
An example of an employer tax credit is the EITC
Indicate whether the statement is true or false
Which form of business organization creates a separate legal being?
a. partnerships and proprietorships b. only proprietorships c. only partnerships d. only corporations e. corporations and partnerships