If the Production of a Good Generates External Benefits, the Government

question 19

Multiple Choice

If the production of a good generates external benefits, the government could increase efficiency by

• A) taxing the production of the good to reduce the amount produced.
• B) subsidizing production of the good to increase the amount produced.
• C) regulating production of the good to reduce the amount produced.
• D) requiring all producers of the product to be licensed to produce the product.

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Definitions:

Purchasing Power Parity

A theory which states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Exchange Rate

The price at which one country's currency can be exchanged for another country's currency.

Basket of Goods

A representative collection of products and services used to monitor price changes and inflation over time.

Interest Rates

A finance charge expressed as an annual rate of return or the annual cost of credit or loan, which reflects the time value of money.