If a good is produced by firms that generate external costs, the price consumers pay
A) will be efficient as long as it equals the marginal costs of the firms.
B) will be too low.
C) will be too high because the consumers end up paying the costs instead of the firm.
D) will be the correct price, but the quantity sold of the good will be too large.
B
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Answer the following statements true (T) or false (F)
1) The law of increasing opportunity costs limits international specialization. 2) Answer the question on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the given information. Alpha should specialize in Y and Beta in X. 3) Answer the question on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the given information. The terms of trade will be at or within the 1X = 1½Y to 1X = 2 / 3 Y range. 4) Answer the question on the basis of the following information. Assume that by devoting all its resources to the production of X, nation Alpha can produce 40 units of X. By devoting all its resources to Y, Alpha can produce 60Y. Comparable figures for nation Beta are 60X and 40Y. Refer to the given information. Alpha would prefer terms of trade at, or close to, 1X = 1½Y.
Using exchange rates based on purchasing power parity to compare per capita incomes in developing and developed countries might lead one to conclude that people in developing countries:
A. are worse off than if market exchange rates are used. B. are no worse off than if market exchange rates are used. C. are better off than if market exchange rates are used. D. do not use markets enough to make such a comparison feasible.