Compare market price and quantity to socially optimal price and quantity if hog farmers ignore the polluting effect of hog waste on nearby waterways. Use a graph to assist in your explanation.
What will be an ideal response?
The market results in too low a price and too high a quantity of hogs. If the hog waste were included as a cost, supply would shift left (to S2) and price would increase, along with a decrease in quantity.
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In the above figure, start with the economy in equilibrium at point A. Then an unanticipated reduction in aggregate demand triggers a shift from AD1 to AD2. In the short run, this would cause
A) the price level to move from P1 to P2, but real Gross Domestic Product (GDP) would stay at Y1. B) the price level to fall from P1 to P2, real Gross Domestic Product (GDP) to fall from Y1 to Y2, and the rate of unemployment to increase. C) the price level to fall by some amount less than P1 but greater than P2, and the rate of unemployment would decrease. D) no change in either the price level or real Gross Domestic Product (GDP), but a decrease in unemployment.
Use of the principle of comparative advantage involves
a. specialization only. b. exchange only. c. both specialization and exchange. d. money only.
A bank holding company is: a. a conglomerate that owns a bank to service the other businesses it owns. b. a loose federation of private banks that holds assets in common
c. a corporation that owns one or more banks. d. a bank that is owned by the depositors. e. a subsidiary of a major corporation.
Which of the following will tend to make the deposit expansion multiplier a larger number?
A. A decrease in loans made by commercial banks B. An increase in loans made by commercial banks C. An increase in the prime interest rate D. An increase in the money supply E. A decrease in the required reserve ratio