In the model discussed in Chapter 3, why do we assume G and T are exogenous?
What will be an ideal response?
It is based on two arguments: First, government do not behave with the same regularity as consumers or firms, so there is no reliable rule we could write for G or T. Second, treating G and T as exogenous help explore the implications of alternative spending and tax decisions.
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A cake is to be shared by two people. Both desire the largest piece possible. One of the two will cut the cake. Under which of the following situations will the cutter adopt a Rawlsian social welfare function?
A) The person cutting the cake chooses the first piece. B) The person not cutting the cake chooses the first piece. C) The two individuals will bid for the right to cut the cake and choose first. D) The two individuals will toss a coin for the right to cut the cake and choose first.
The table below shows cost data for a firm that is selling in a purely competitive market.OutputAverage Variable CostAverage Total CostMarginal Cost10$5.00$15.00$3124.0013.004144.7511.506165.759.009209.0012.0014Refer to the above cost chart. Which output level will the firm never produce?
A. 10 B. 20 C. 12 D. 16
Assume that the price overestimates the value that society places on the flu vaccine. If firms produce where P = MC, firms will be producing ________ the socially efficient amount of flu vaccine.
A. more than B. less than C. exactly D. sometimes more than and sometimes less than
If land becomes less valuable in residential use than in commercial use
A. the supply of land available for commercial use should increase and the supply of land for residential use should decrease. B. there will be no change in the allocation of land, as there is no responsiveness to price changes by suppliers of land. C. the supply of land for commercial use will become perfectly inelastic and the supply of land for residential use will become perfectly elastic. D. there can be no change in the allocation of land because land is fixed in supply.