Because smoking causes illness and disability to smokers, society must maintain more health-service capacity than it would need in the absence of smoking. Since the cost of maintaining this capacity is covered to a substantial degree by health insurance, even nonsmokers must pay higher premiums. Also, smokers hurt nonsmokers as a result of "passive smoke." The Rand Corporation estimates these
costs to be 29 cents per pack of cigarettes. Cigarette taxes average 37 cents per pack. Based on the economist's definition of efficiency, it follows that
a. cigarette taxes are too high, and cigarette production is lower than the efficient amount.
b. cigarette taxes should be increased until external costs are zero.
c. since the tax exceeds the marginal cost, we have a better than efficient outcome.
d. we are overconsuming cigarettes.
a
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Which of the following describes the relationship of price and quantity supplied based on the law of supply?
a. Firms are willing to produce a greater quantity of a good when the price of the good is higher. b. Firms' production levels are not correlated with the price of a good. c. The supply curve slopes downward. d. As price increases, producers have more market power than consumers.
In the classical model,
a. markets do not automatically clear. b. business demand for loanable fund exceeds business planned investment spending. c. there is no government sector, only private consumption and planned investment. d. businesses engage in interest-free borrowing. e. the government's demand for funds is vertical.