If the Government Wants to Ensure That Producers Fully Internalize

question 128

Multiple Choice

If the government wants to ensure that producers fully internalize the marginal external cost associated with the pollution they emit,then it is necessary to

• A)accurately measure that external cost.
• B)first ensure that firms are operating at their profit-maximizing level of output.
• C)determine the long-run average cost structure for the firms.
• D)determine the short-run average cost structure for the firms.
• E)eliminate all the pollution the firm emits.

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Definitions:

Aggregate Demand

The total demand for all goods and services within a particular market.

Wealth Effect

The wealth effect is the change in consumer spending and economic behavior resulting from changes in perceived wealth, typically due to asset price variations.

Aggregate-Demand Curve

A curve that represents the total demand for all goods and services in an economy at various price levels.

Liquidity Preference Theory

is the hypothesis that investors prefer to have liquid rather than illiquid assets and will demand higher yields for longer-term securities that are less liquid.