If Markets Are Perfectly Competitive and Production of a Good

question 76

Multiple Choice

If markets are perfectly competitive and production of a good results in water pollution, the imposition of a tax on the good will:

• A) reduce the number of firms producing that good in the long run.
• B) increase the number of firms producing that good in the long run.
• C) reduce the number of firms producing that good in the short run.
• D) increase the number of firms producing that good in the short run.

---

Definitions:

100-percent-reserve Banking

A banking system in which banks keep the full amount of their depositors' funds in reserve, meaning they do not loan out any of the deposits but instead hold 100% of deposited money.

Money Supply

The total amount of currency and monetary assets within an economy at a specific time.

Reserve Requirements

Regulations set by central banks determining the minimum amount of reserves that banks must hold against deposits, used to control the money supply.

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are deemed at risk of failure.