A firm that produces chemical solvents creates some air pollution because of the emissions from its manufacturing facilities. A tax is imposed on the firm, equal to the costs of environmental damage caused by a unit of the emissions. What is the result?
A. Consumers of the chemical solvents will be willing to pay the full amount of the tax, and so the quantity produced will be unaffected.
B. Demand for the chemical solvents will increase.
C. The quantity of chemical solvents produced now will be the efficient amount.
D. Demand for the chemical solvents will decrease.
Answer: C
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Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P) = 600. Should Y rise to 4,200, the same quantity of real money balances
A) will not be demanded under any conditions. B) will be demanded again provided the interest rate does not change. C) will be demanded again provided the interest rate rises by a certain amount. D) will be demanded again provided the interest rate falls by a certain amount.
The area above the supply curve and below the market price represents:
a. the consumer surplus b. the producer surplus. c. the deadweight loss of the producer. d. the deadweight loss of the consumer.