The efficiency loss of a tax is the idea that:
A. in addition to taking income from the citizenry, taxes also increase the rate of inflation.
B. taxes cause a decline in output for which marginal benefit exceeds marginal cost.
C. taxes diminish incentives to work.
D. government spends dollars less efficiently than do households and businesses.
Answer: B
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When a paper producer pollutes the air, economists argue that there is
A) efficiency, if production is at its maximum level. B) a positive externality. C) an external cost. D) a cost paid solely by the firm.
Suppose that an increase in population increases demand in New Haven County's perfectly competitive market for auto repair. Which of the following is true in the short run?
a. Auto repair centers may be able to earn economic profit. b. Normal profits increase. c. The market supply curve of auto repair services shifts to the left. d. Either price or output is likely to increase, but it's impossible to say which. e. After firms have had time to adjust to the new equilibrium, the price of auto repair services will exceed the marginal cost.