When a Production Quota Is Used to Remedy the Problem

question 60

Multiple Choice

When a production quota is used to remedy the problem of the commons, then

• A)the production quota is set so that use of the resource is where marginal private benefit equals marginal cost.
• B)the production quota is set so that use of the resource is where marginal private benefit equals marginal social benefit.
• C)the market equilibrium, but not the efficient outcome, is achieved.
• D)all users of the resource have an incentive to cheat on the production quota.
• E)the production quota is set so that marginal social benefit is maximized.

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Definitions:

Demand Deposits

Bank account funds that are available on demand without any delay or penalties, like those in checking accounts.

Excess Reserves

The reserves held by a bank in excess of the minimum reserve requirements set by central banking authorities.

Required Reserves

The minimum amount of reserves that banks are required to hold by law, as a safeguard against bank runs.

Demand Deposits

Bank account balances that can be withdrawn on demand without any notice, such as in checking accounts.