Which of the following is NOT correct?
A) MC = change in TC/change in Q
B) ATC = TC/Q
C) AVC = TVC/Q
D) ATC + AVC = AFC
Answer: D
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Suppose the measured unemployment rate is 3.9% and the natural rate of unemployment is 5.1%. In this situation, policymakers should
A) attempt to stimulate the economy. B) attempt to slow the economy. C) not intervene in the economy. D) The actions of policymakers will depend on how much of the natural rate is frictional unemployment and how much is structural unemployment.
Under what circumstances might a government price ceiling lead to the development of a black market?
What will be an ideal response?
A monopolist faces the inverse demand for its output:
p = 30 – Q The monopolist also has a constant marginal and average cost of $4/unit. The government is seeking ways to collect tax revenue from the monopolist and faces two proposals: i. Impose a specific tax of t on the monopolist. ii. Impose an ad valorem tax of a on the monopolist. a. Suppose the government imposes a 20% ad valorem tax on the monopolist. What price and quantity does the monopolist choose and how much revenue does the government generate from the tax? b. Rather than an ad valorem tax, what is the government's revenue from a specific tax of t imposed on the monopolist? Your answer should be in terms of t. c. Show that a specific tax of $3.70/unit generates the same revenue as a 20% ad valorem tax (approximately). d. Which tax has a greater distortion on the monopoly output?
Arguments in support of protectionism (and against free trade) include all of the following EXCEPT
A) new and troubled industries need to be protected until they acquire sufficient strength to compete equally against their foreign counterparts. B) jobs at home should be protected from cheap foreign labor. C) protectionism increase total domestic consumption possibilities. D) national security interests require that nations retain the ability to produce vital materials at home and avoid dependence upon potential enemies.