Author Question: After the U.S. introduces of a tariff in the market for phones, the price of phones in the U.S. will ... (Read 52 times)

abarnes · **on:** Jun 30, 2018

After the U.S. introduces of a tariff in the market for phones, the price of phones in the U.S. will
a. decrease
b. increase
c. remain the same
d. change in an indeterminate manner

Question 2

Why do decision makers tend to ignore external costs? How can internalizing external costs move us closer to efficient levels of output?

AmberC1996 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

b

Answer to Question 2

The decision makers ignore it because it is not a resource that they have to purchase for the production process. If an industry or a firm were somehow forced to compensate persons who incur the costs of pollution, we would say that the industry had internalized the externality. There would be greater social efficiency if all of the costs of production were internalized. The firms would produce less and charge a higher price, but it would then include all the costs.