13 economists sometimes shock noneconomists by

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13. 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) 1. Graphically portray: (a) A negative externality; (b) A positive externality. See Exhibit 1 in the text. See Exhibit 3 in the text. 2. 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. Curve S 2 represents situation (a) and curve S 3 represents situation (b). III. Chapter 20 Questions & Problems: 2, 7 (p523) 2. 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. ( Hint : Look at Exhibit 1.)
7. 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?
Working with Numbers and Graphs: 1, 2 (p523-524) (Assume Canada is at B and Italy is at C before trade and 1X=1Y as terms of trade for part (d) of Working with Numbers and Graphs 1.) 1. Using the data in the table, answer the following questions: (a) For which good does Canada have a comparative advantage? (b) For which good does Italy have a comparative advantage? (c) What might be a set of favorable terms of trade for the two countries? (d) Prove that both countries would be better off in the specialization-trade case than in the no-specialization–no- trade case. Points on Production CANADA ITALY Possibilities Frontier Good X Good Y Good X Good Y A 150 0 90 0 B 100 25 60 60 C 50 50 30 120 D 0 75 0 180

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