Using a graph, show the effects of a negative externality. Where is the socially optimum point of output? How can it be achieved?
What will be an ideal response?
See the above figure. E is the equilibrium when people only take into consideration private costs, with output Q1 and price P1. When external costs (EC) are added to private costs, the optimal point is E*, with output Q* and price P*. That is, the social optimum with externalities is to produce less and charge a higher price than private costs alone indicates. If a tax is imposed that caused price to increase to P*, or output were restricted to Q*, the optimum could be achieved.
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Wages for some workers do fall during a recession, but it is often:
A. too small of a wage decrease to contribute to economic recovery. B. only after the worker's current contract expires. C. only after the worker receives an annual performance evaluation. D. only after the worker is fired and gets rehired elsewhere at a lower wage.
Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?
a. The demand for loanable funds shifts right. b. The demand for loanable funds shifts left c. The supply of loanable funds shifts right. d. The supply of loanable funds shifts left.