In the Absence of Government Interference, There Is a Constant

question 29

Multiple Choice

In the absence of government interference, there is a constant marginal cost of $6 per ounce for growing marijuana and delivering it to buyers.Suppose that government authorities seize shipments whenever they find them and resell the marijuana that they seize on the open market.The probability that any shipment of marijuana is seized is .10.If a shipment is seized, there is no other punishment besides loss of the marijuana that is seized.The effect of the government action is to

• A)leave prices unchanged.
• B)raise the equilibrium price by $.67.
• C)lower the equilibrium price by $.33.
• D)raise the equilibrium price by $1.33.
• E)raise the equilibrium price by $.60.

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