If in an Attempt to Correct an Externality the Government

question 57

Multiple Choice

If in an attempt to correct an externality the government sets a Pigouvian subsidy too high the equilibrium quantity will be:

• A) higher than the efficient quantity.
• B) lower than the efficient quantity.
• C) equal to the efficient quantity.
• D) zero.

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Definitions:

Exchange-Traded Funds

Trading vehicles that follow different stock indexes, such as the S&P 500.

Cost of Capital

The cost of capital refers to the return a company must earn on its investment projects to maintain its market value and satisfy its creditors and investors.

Rate of Return

A measure of the gain or loss on an investment relative to the amount of money invested.

Bond Investors

Individuals or entities that invest in bonds, which are debt securities issued by corporations or governments to raise funds.