Which of the following is true when profit-maximizing firms in a competitive market are allowed to freely emit negative externalities on society?
a. Consumers are paying a market equilibrium price that reflects the full social marginal cost of production.
b. Consumers are paying a market equilibrium price that reflects only the external marginal cost of production.
c. Consumers are paying a market equilibrium price that is less than the socially efficient price, and consuming more than the socially efficient quantity. This means society is implicitly subsidizing producers by allowing them to pollute.
d. None of the above is correct.
c
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A firm uses an efficiency wage scheme to deter workers from shirking. A risk-neutral worker will not shirk if
A) the expected loss from being fired is larger than or equal to the gain from shirking. B) the expected loss from being fired is smaller than the gain from shirking. C) the gain from shirking is positive. D) the expected loss from being fired is zero.
If a 2 percent increase in the price of product X causes the demand for product Y to increase by 6 percent, then:
A. X and Y are complements. B. X and Y are substitutes. C. X and Y are independent goods. D. the demand for X is elastic.