Suppose a product produces substantial spillover costs. If the government adopts a policy that forces producers to bear those costs:
a. the equilibrium quantity of the product exchanged will fall.
b. the initial misallocation of resources will be corrected.
c. the equilibrium price of the product will rise.
d. all of the above will be true.
Question 2
Mutually beneficial trade will occur whenever the exchange rate between the goods involved is set at a level where:
a. each country can export a good at a price below the opportunity cost of producing the good in the domestic market.
b. each country can import a good at a price below the opportunity cost of producing the good in the domestic market.
c. the exchange ratio is exactly equal to the opportunity cost of producing the good in each country.
d. each country will specialize in the production of those goods in which it has an absolute advantage.
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