An external cost is borne by
A. Employees of the firm that produces the good.
B. A third party to the market transaction.
C. The consumers of the good.
D. The producer of the good.
Answer: B
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In a market system, how are the price signals established?
A) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing guidelines because they don't want to anger their consumers. B) Industry associations establish an acceptable price range for each commodity sold within the industry, and member firms are obligated to abide by association guidelines. C) The forces underlying supply and demand interact to determine a market clearing price. D) Federal legislation establishes maximum prices for most goods, and state governments regulate the prices of any remaining items.
In an aggregate expenditures diagram, a lump-sum tax (T) will:
A. not affect the C + I g + X n line. B. shift the C + I g + X n line upward by an amount equal to T. C. shift the C + I g + X n line downward by an amount equal to T. D. shift the C + I g + X n line downward by an amount equal to T × MPC.