Author Question: Which of the following externalities does not distort the allocation of resources? I. An ... (Read 59 times)

crazycityslicker · **on:** Jul 1, 2018

Which of the following externalities does not distort the allocation of resources? I. An individual's unwillingness to cut his or her own lawn in an otherwise immaculately kept neighborhood. II. Smoke produced by a new firm in an area that raises the costs of other firms. III. A new firm's bidding up skilled wages in an area, thus raising costs of other firms. IV. An individual's unwillingness to obtain job training, thereby lowering the total GNP.
a. I, III, and IV.
b. III and IV.
c. III only.
d. IV only.

Question 2

To reach an economically efficient output level, the size of an excise tax imposed on a firm generating a negative externality should be
a. the firm's marginal cost.
b. the social marginal cost.
c. the difference between the social marginal cost and the firm's marginal cost.
d. the sum of the social marginal cost and the firm's marginal cost.