Water has a higher total utility (usefulness) than diamonds, but it is much less expensive than diamonds. This is because whereas diamonds are rare, water is plentiful, making the marginal utility of diamonds much higher than the marginal utility of water. What are two other goods that you can think that demonstrate that price is determined not by total utility but by marginal utility? Explain how these goods demonstrate the same principles.
What will be an ideal response?
Two different types of goods: (1) a rare and expensive good that is nonessential to people, such as a luxury sports car or a rocket ship, and (2) a plentiful and inexpensive good that is essential to all people, such as grain or oxygen. Students should explain that the rare and expensive good has lower total utility because it is nonessential to human life, but that it has high marginal utility because it is so rare and valuable. By contrast, the plentiful and inexpensive good has higher total utility because it is essential to human life but low marginal utility because it is so plentiful and is free or can be purchased for little money.
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Statistical studies suggest that the cost of direct controls for any target level of pollution is
A. much higher than the cost of taxes on emissions. B. about the same as the cost of taxes on emissions. C. lower than the cost of taxes on emissions. D. impossible to compare to the cost of taxes on emissions.
In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have
a. increased productivity and real GDP per person. b. increased productivity but decreased real GDP per person. c. increased real GDP per person, but decreased productivity. d. decreased productivity and real GDP per person.
Senator Noitall says that in order to help poor countries develop, the United States should: 1 . Encourage poor countries to allow U.S. and other foreign firms to build and operate businesses in their country; 2 . Reduce or eliminate subsidies to U.S. producers when poor countries have a comparative advantage producing goods the U.S. subsidizes; 3 . Work to promote political stability in poor
countries; and 4 . Reduce poor countries reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow? a. 1 b. 2 c. 3 d. 4
Contractionary fiscal policy is so named because it:
A. is expressly designed to contract real GDP. B. involves a contraction of the nation's money supply. C. necessarily reduces the size of government. D. is aimed at reducing aggregate demand and thus achieving price stability.