Question

1. Which of the following is incorrect about the impact of the policy/institution of a country?

1. Insecure property rights of the land can discourage farmers from making investments on the farm.
2. Policies that subsidize small firms may cause inefficient firms to grow.
3. The agricultural output can be maximized if land is equally allocated among farmers
4. The historical institution of a country may have a long-term impact on its economic performance.

2. Which of the following statements is incorrect about misallocation of capital across firms?

1. If there is no misallocation, the marginal product of capital should be increasing with firm-level productivity.
2. If there is no misallocation, the marginal product of capital should equalize across firms.
3. Policy that imposes a higher tax rate on larger firms can lead to misallocation of capital.
4. Policy that imposes a lower tax rate on larger firms can lead to misallocation of capital.

Answer 1

Question - Which of the following is incorrect about the impact of the policy/institution of a country?

Anwer- Option B, policies that subsidize small firms may cause inefficient firms to grow.

As because to avail a subsidy there are some eligibility criterias and subsidy helps small firms to grow, there is no point of saying that an inefficient firm will grow moreover even if it grows it wouldn't be able to survive in the Market.

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answered by: anonymous