In the Absence of Government Interference, There Is a Constant

question 23

Multiple Choice

In the absence of government interference, there is a constant marginal cost of $4 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 .50.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)raise the equilibrium price by $8.
• B)raise the equilibrium price by $4.
• C)lower the equilibrium price by $2.
• D)leave prices unchanged.
• E)raise the equilibrium price by $2.

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Definitions:

Tariffs

Taxes imposed on imported goods, often used to protect domestic industries from foreign competition.

Fair Trade

A social movement and market-based approach that aims to help producers in developing countries achieve better trading conditions and promote sustainability.

Free Trade

International trading practices characterized by minimal governmental intervention regarding tariffs, allowing for the unobstructed exchange of goods and services.

General Agreement on Trade and Tariffs

An international trade agreement signed in 1947, aimed at reducing tariffs and other trade barriers to promote global economic exchange.