You are having a party and one of your guests lights up a cigar without asking. Explain why this creates an externality
What will be an ideal response?
Smoking in an enclosed room forces other guests to inhale smoke which they would not have chosen to inhale if the decision were completely up to them. This external burden can range from headaches, being uncomfortable, and lung cancer. Of course, you could limit the externality by kicking the guest out.
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The above figure shows the payoff to two airlines, A and B, of serving a particular route
If the two airlines must decide simultaneously, and the government imposes a $20 per firm tax on firms that service this route, which of the following maximizes the firms' joint profits? A) Neither firm services the route. B) Firm A offers firm B $20 to not enter. C) Both firms will service this route. D) Firm B offers firm A $30 to not enter.
According to economist Jean-Pierre Dube, a 10 percent increase in the price of a twelve-pack of Mountain Dew will lead to a ______ percent increase in the sales of twelve-packs of Pepsi.
a. 10 b. 7.7 c. –5 d. –8.2