Explain the principle of the "second best."
What will be an ideal response?
The principle of second best rests on the fact that just because a tax distorts an economic decision does not always imply that such a tax imposes an excess burden. If previously existing distortions exist, such a tax may actually improve efficiency.
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An externality occurs when ________
A) the quantity demanded of a good exceeds the quantity supplied B) the quantity supplied of a good exceeds the quantity demanded C) the government regulates production and consumption decisions D) an economic activity affects third parties not engaged in the activity
Bianca consumes apples and bananas and is in consumer equilibrium. The marginal utility of the last apple is 10 and the marginal utility of the last banana is 20. If the price of an apple is $0.50, then what is the price of a banana?
A) $0.10 B) $0.25 C) $0.50 D) $1.00