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Suppose unregulated production of pesticides results in an equilibrium price and quantity of $400 and 1,000 tons per day, respectively, and a marginal external cost of $10 a ton.
a) If the government were to eliminate the external cost by using taxes, what should the tax equal?
b) Would the government action described above affect the quantity of pesticides produced? If yes, how? If no, why not?
Uninsurable Risk
An eventuality for which the frequency or magnitude of potential losses is unpredictable or unknowable. Insurance companies are not willing to sell insurance against such risks.
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