Question 1
If a tax is placed on perfectly competitive firms that impose external costs on society, the firm's ________ curve will shift up and the industry ________ curve will shift to the left.
◦ marginal cost; demand
◦ marginal benefit; demand
◦ marginal benefit; supply
◦ marginal cost; supply
Question 2
Suppose that you rent a house next to a dog kennel. The kennel holds up to 200 dogs at a time, and these dogs bark all day long. You now have to spend $150 more per month on earplugs and headache medicine because of the noise. You could move to another house far enough away from the factory, but the rent for that house is $125 more than you now pay. The efficient solution to this problem is that
◦ the kennel owner should compensate you $150 so that you can pay for the additional expenses you incur.
◦ you should move to the new house because the additional rent on that new house is less than the additional expenses you incur from living next to the kennel.
◦ the kennel owner should reimburse you $25, the difference between your expenses and the higher rent on the new house.
◦ the kennel should be able to continue to operate as it is because only one person is being harmed by the noise.
What type of errors are these: calling only large dogs a dog and calling a dog a kitty?
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