Define the following terms and explain their importance to the study of economics.
a. public good
b. externality
c. irreversible decision
d. moral hazard
e. rent seeking
What will be an ideal response?
a. A public good is a commodity or service whose benefits are not depleted by an additional user, and for which it is difficult or impossible to exclude persons from its benefits.b. An externality is an event incidental to an economic action. It can be beneficial or detrimental. Externalities are universal and result in (socially) nonoptimal outcomes. Specifically, beneficial externalities result in underproduction of goods and services, while detrimental externalities result in overproduction of goods and services.c. An irreversible decision is one in which something is permanently lost, for example, building a dam may permanently destroy a fish species or a natural wilderness. Economists generally think that private markets alone do not handle these sorts of problems well.d. Moral hazard refers to the tendency of insurance to discourage policyholders from protecting themselves from risk. The result can be higher insurance rates for everyone.e. Rent seeking refers to unproductive activity in pursuit of economic profit. While producing for profit is generally desirable, rent seeking does not increase the amount of goods and services available for consumption.
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Moving along the potential GDP line, the money wage rate changes by the same percentage as the change in the price level so that the real wage rate
A) stays at the full-employment equilibrium level. B) increases. C) might either increase or decrease. D) decreases. E) stays the same, though not necessarily at the full-employment equilibrium level.
The cost of basics like milk, bread, potatoes and bananas has jumped in the past year, forcing families to nix luxuries, steer away from organic goods and buy more house brands
"I think it's affecting everybody," said Elize Joseph 48, a nursing attendant. "To spend $40 on groceries is nothing. It doesn't go a long way." When food prices increase, what will happen to Elize's total utility? A) It increases. B) It stays the same. C) It decreases. D) It cannot be determined without knowing her total income.
Some economists argue that the short-run Phillips curve is not vertical, and that monetary policy can be effective in the short run. Which one of the following is not one of the reasons for this skepticism?
A) Individuals may not be able to use information of Fed Policy to make a reliable forecast of inflation. B) Empirical evidence shows workers and firms have rational expectations. C) Contracts with workers and suppliers may hinder firms' abilities to adjust to price changes. D) Wages and prices may not adjust rapidly enough to keep the short-run Phillips curve vertical.
Refer to Table 11.1. What is the value of personal consumption expenditures?
A) $3,000. B) $1,000. C) $4,350. D) $2,350.