2. (5 points) Suppose that all the available land in country A is being rented f

Question

2. (5 points) Suppose that all the available land in country A is being rented for cither housing or farming. Describe what would happen in the markets for farmlands and housing lands in the long run, if the government were to start subsidizing wheat production. 3. (5 points) True or false? "Since negative externalities are detrimental to social welfare, the goal of any sensible government policy must be to stop all negative-externality-generating activities altogether". 4. (5 points) Suppose government officials have set an emissions tax to reduce pollution. Further suppose that with the emissions tax, the marginal social cost of pollution is smaller than the marginal social benefit of pollution. Should the tax be adjuste d, and if so - should it be increased or decreased?

Explanation / Answer

2. In the long run this move by government will lead to increase in the demand for land mainly farmlands. But supply of farmland being fixed this will lead to increased rent for farmlands while those for the housing lands will remain the same.

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