Author Question: In 1920 a constitutional amendment was passed that outlawed the production, sale, purchase, and ... (Read 164 times)

tuffie · **on:** Jun 29, 2018

In 1920 a constitutional amendment was passed that outlawed the production, sale, purchase, and consumption of alcoholic beverages. Prohibition encouraged bootlegging and black markets for whiskey, wine, and beer.

The amendment was eventually repealed in 1933. In 1920, what alternative economic policy was available to the government as a means of reducing alcohol consumption nationwide?

Question 2

The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake. If paper production is 4 tons per week, the outcome is ________.

A) efficient because marginal benefit equals marginal private cost
B) efficient because private and external costs are accounted for
C) inefficient because only marginal external benefits are accounted for
D) inefficient because marginal social cost exceeds marginal social benefit

Bsand8 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The government could have kept alcoholic beverages legal and then placed a heavy tax on them. This policy would have shifted the supply curve leftward, increased the (legal) price, and decreased the (legal) quantity. Unfortunately, the higher the tax, the more likely it would have been that black markets would have developed (as with outright prohibition) to avoid the tax.

Answer to Question 2

D