Refer to the Competitive Market Diagram for Product Z

question 83

Multiple Choice

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D₂ and S₂. If there are substantial external benefits associated with the production of Z, then

• A)efficient resource allocation occurs at output G and price B because the market mechanism does not measure all benefits.
• B)an output smaller than G would improve resource allocation.
• C)government should levy a per-unit excise tax on Z to shift the demand curve toward D₁.
• D)an output greater than G would result in a more efficient allocation of resources.

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Definitions:

Average Rate of Return Method

A method of evaluating capital investments by calculating the average annual profit expected from the investment and dividing it by the initial investment cost.

Present Value

The contemporary valuation of a future money sum or cash flow series, based on a predetermined return rate.

Time Value

The idea that having money now is more valuable than having the same sum in the future because of its ability to generate earnings.

Money Concept

A financial principle that emphasizes the role of currency in transactions and as a measure of value in the economic system.