Question 1
If the government wishes to encourage firms to internalize externalities, they should ________ activities resulting in negative externalities and ________ activities resulting in positive externalities
◦ tax; subsidize
◦ subsidize; tax
◦ ban; generate
◦ place an injunction against; tax
Question 2
Refer to Scenario 16.1 below to answer the question(s) that follow.
SCENARIO 16.1: The marginal benefit for a particular food is described by
MB = 30 -
q, where q refers to the quantity of the food. The marginal cost of producing the food is described by
MC = 2
q. There is a negative externality associated with food production and the marginal social cost of food production is
MSC = 4
q.
Refer to Scenario 16.1. The competitive output level is ________ and the competitive price is ________.
◦ 10 units of food; $20
◦ 6 units of food; $24
◦ 0 units of food; $0
◦ 4.29 units of food; $25.71
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