Question

1. Wages are higher in Denmark than in Hungary. Compare the equipment and labor costs of producing Duplo bricks in Denmark and Hungary.
2. How did the sale of the Kladno factory affect Lego’s fixed relative to variable costs of producing Lego bricks?
3. How did the sale of the Kladno factory affect Lego’s short- and long-run break-even for Lego bricks? (Hint: State any assumption on the price which Flextronics charges to manufacture Lego bricks.)

Answer 1

53.

All externalities:

cause markets to fail to allocate resources efficiently.

This is because in case of externality either there is under production or over production.

55.

When negative externalities are present in a market:

social costs will be greater than private costs.

This is becuase the cost to society is higher than the cost incurred by the producers.

56.

Internalizing an externality refers to making:

buyers and sellers take into account the external effects of their actions.

57.

The following policies is the government most inclined to use when faced with a positive externality:

subsidies.

58.

A command-and-control policy is another term for a:

governmental regulation.