Use the Following to Answer Questions

question 34

Multiple Choice

Use the following to answer questions:
Figure: Efficiency and Pollution
-(Figure: Efficiency and Pollution) Look at the figure Efficiency and Pollution. If the government imposed an environmental standard that did NOT allow the quantity of pollution to exceed 30 tons, there would be:

• A) a socially optimal quantity of pollution.
• B) too little pollution, because its marginal social benefit would exceed its marginal social cost.
• C) too much pollution, because its marginal social cost would exceed its marginal social benefit.
• D) too much pollution, because any pollution is too much from an economist's perspective.

---

Definitions:

Modified Duration

A measure that estimates how the price of a bond will change in response to a change in interest rates, adjusting for the bond's yield to maturity.

Convexity

The curvature of the price–yield relationship of a bond.

Yield

The annual percentage yield received from an investment, including interest or dividends, relative to the cost of that investment.

Rate Anticipation Swap

A switch made between bonds of different durations in response to forecasts of interest rates.