Which of the Following Statements Is True

question 161

Multiple Choice

Which of the following statements is true?

• A)A tax applied to an activity that generates a negative externality always brings about the socially optimal level of output.
• B)A subsidy applied to an activity that generates a positive externality always brings about the socially optimal level of output.
• C)A tax applied to an activity that generates a positive externality may bring about the socially optimal level of output.
• D)A tax applied to an activity that generates a negative externality may bring about the socially optimal level of output.

Recognize the impact of moral hazard in various contexts and how it affects contract outcomes.

Grasp the significance of the Coase theorem in resolving externalities without government intervention.

Comprehend how technological improvements affect pollution control and society's optimal pollution abatement level.

Understand methods to mitigate moral hazard in insurance through co-pays and deductibles.

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Definitions:

Assets

Resources owned or controlled by a business or an individual that are expected to produce future economic value.

Liabilities

Financial obligations or debts that a company owes to others, which must be settled over time through the transfer of economic benefits.

Fees Earned

Income earned from providing services before receiving payment.

Rent Revenue

Income earned from leasing out property or space to tenants.