Economists sometimes shock noneconomists by stating that they do not favor the
complete elimination of pollution. Explain the rationale for this position.
Working with Numbers and Graphs: 1, 2 (p458)
Graphically portray: (a) A negative externality; (b) A positive externality.
See Exhibit 1 in the text.
See Exhibit 3 in the text.
Graphically represent: (a) A corrective tax that achieves the socially optimal
output; (b) A corrective tax that moves the market output further away from
the socially optimum output than was the case before the tax was applied.
See Exhibit 4 in the text.
represents situation (a) and curve S
represents situation (b).
III. Chapter 20 Questions & Problems: 2, 7 (p523)
If country A is better than country B at producing all goods, will country A
still be made better off by specializing and trading? Explain your answer.
: Look at Exhibit 1.)
Suppose the U.S. government wants to curtail imports. Would it be likely to
favor a tariff or a quota to accomplish its objective? Why?