Hotelling's model has been used to describe differentiation in the political "market." Suppose that 100 voters are evenly distributed between the extreme left and the extreme right on the political spectrum, and that all voters vote, and they always vote for the candidate closest to them on this spectrum. The numbers on this spectrum represent the number of voters lying to the left of the number. So, at the midpoint, fifty voters lie to the left and fifty to the right.
If Candidate Y is running against Candidate Z:
A. Both candidates will have an incentive to move toward each other's position.
B. Candidate Y will have an incentive to move to the left, and Candidate Z will have an incentive to move to the right.
C. Both candidates will have an incentive to move to the left.
D. Neither candidate has any incentive to move.
Answer: A
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Indicate whether the statement is true or false
The size of the deadweight loss generated from a tax is affected by the
a. elasticities of both supply and demand. b. elasticity of demand only. c. elasticity of supply only. d. total revenue collected by the government.
An increase in the price of product A will:
A. reduce the demand for resources used in the production of A. B. increase the demand for complementary product C. C. increase the demand for substitute product B. D. reduce the demand for substitute product B.
Arbitrage equalizes rates of return across similar investments because:
A. arbitrage also equalizes the prices of the assets. B. investors prefer diversity. C. investors will want to replace lower rate of return assets with those generating higher rates of return. D. investors will want to replace higher rate of return assets with those generating lower rates of return.