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from society's perspective.
D) The market equilibrium quantity of cigarettes smoked will be less than the socially
there are no negative externalities so it is efficient Version 1 Page 15 69. Market failures are things that are inherent to the market that cause the market allocation
to be inefficient
Externalities cause market failures which are inherent in the market place
70. Consider a utility possibilities frontier. Imagine a society must choose between one
specific efficient allocation and one specific inefficient allocation. The society will
always choose the efficient allocation.
71. Trades can be involuntary transactions
72. Within a firm, inputs are not allocated by markets.
73. Karen consumes gasoline and other goods. A new excise tax on gasoline raises gas
prices. However, the government pays Karen an income subsidy that is just enough for
her to stay on her original (pre-tax) indifference curve. Her new optimal consumption
bundle will have:
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This document was uploaded on 02/18/2014 for the course ECON 2010 at Colorado.
- Fall '07