Suppose Jones's company and Smith's company both pollute. Under a system of marketable pollution permits, which of the following must be true in order for Smith and Jones to benefit from trading the right to pollute?
A. Smith and Jones must be able to reduce pollution at exactly the same cost.
B. Smith and Jones must have different abatement costs.
C. Smith and Jones must have a social conscience and must be devoted to pollution abatement.
D. The government must direct Smith and Jones toward beneficial trades.
Answer: B
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Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D 2 and S 2 . If there are substantial external benefits associated with the production of Z, then:
A. efficient resource allocation occurs at output G and price B because the market
mechanism does not measure all benefits.
B. an output smaller than G would improve resource allocation.
C. government should levy a per-unit excise tax on Z to shift the demand curve toward D 1 .
D. an output greater than G would result in a more efficient allocation of resources.
Statistical discrimination is "rational" in the sense that it is consistent with profit maximization,
A. but if statistical evidence is used to exclusively hire or fire one race or another it is illegal. B. and as a result it is illegal. C. so it is weighed by the courts against how bad it looks. D. and as a result it is legal.