Economist A believes that the case for government is a strong one, but she doesn't always say, when it comes to negative externalities, that government can turn an inefficient market outcome into an efficient outcome. Which statement is economist A most likely to make?
A) If the tax placed on the activity that generates the negative externality is too large, we are not likely too move from inefficiency to efficiency.
B) If the subsidy placed on the activity that generates the negative externality is too small, we are not likely to move from inefficiency to efficiency.
C) If there is a free rider problem, then government cannot solve the problem of negative externalities.
D) a and b
E) none of the above
A
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A reverse repurchase agreement of government securities by the Fed
A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves.
Buffalo in the United States almost became extinct while cattle, an animal that provides similar products, never has been close to extinction. The difference is due to
A) the greater marginal value of a head of cattle relative to buffalo, leading to over-hunting of buffalo. B) the greater marginal value of a buffalo relative to a steer, leading to the overharvesting of buffalo. C) cattle existing in Europe also while buffalo were specific to North America. D) the use of private property rights on cattle and common property rights on buffalo.