Answer the following statement(s) true (T) or false (F)
1. A Pigou tax forces car manufacturers to internalize the cost of pollution.
2. Cap and Trade is so named because the government puts a “cap” on the amount of exports that domestic firms are allowed to “trade” with foreign nations.
3. A Cap and Trade system is more prone to error than a Pigou tax.
4. Pigou taxes are unnecessary in the presence of transaction costs.
5. Pigovian analysis indicates that a subsidy should be awarded when economic activity creates social benefits.
1. True
2. False
3. True
4. False
5. True
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Consider a downward-sloping demand curve. When the price of an inferior good decreases, the income and substitution effects
A) work in the same direction to increase quantity demanded. B) work in the same direction to decrease quantity demanded. C) work in opposite directions and quantity demanded increases. D) work in opposite directions and quantity demanded decreases.
Newly issued stocks and bonds are bought and sold in
A) primary markets. B) auction markets. C) futures markets. D) commodity markets.