Comment on the following statement: "Taxes on externality-producing activities are generally used to eliminate externalities."
What will be an ideal response?
The statement is false. Taxes are used to force decision makers to consider the full costs of their actions. This does not mean that the decision maker will decide to stop the externality-producing activity but he will generally scale back the activity.
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What are the costs associated with government intervention in an economic system? Given that there are costs involved with government intervention in an economy, why do governments still choose to intervene in markets?
What will be an ideal response?
An analysis of production possibilities curves indicates that the reason why underdeveloped nations have difficulties increasing their economic growth rates is because:
a. low population growth rates mean fewer workers to produce food and other necessities. b. their production possibilities curves shift in when resources are increased. c. their production possibilities curves are positively sloped, unlike those in more developed economies. d. they must cut back their already meager consumption levels to increase capital production. e. the opportunity cost of shifting resources from consumption goods to capital goods is relatively low.