What is the largest problem associated with using a tax to correct for an externality? Explain
What will be an ideal response?
The biggest problem with using a tax to correct for an externality is that damages must be estimated in financial terms. This is quite difficult to do. If the tax is incorrect, the outcome will not be efficient. In fact, the tax could lead to an even greater amount of inefficiency.
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Price ceilings often generate
A) market clearing prices. B) rapid increases in supply to meet the excess demand. C) equilibriums that utilize rationing by price. D) black markets.
Negative autocorrelation in the change of a variable implies that
A) the variable contains only negative values. B) the series is not stable. C) an increase in the variable in one period is, on average, associated with a decrease in the next. D) the data is negatively trended.