What is the "big tradeoff"?
What will be an ideal response?
The "big tradeoff" is the tradeoff between efficiency and fairness. The idea is that if the government redistributes income so that it is more equally shared, output decreases so that it is less than the efficient amount. Output shrinks because such redistribution blunts people's incentives to work. Hence redistributing income so that everyone has the same amount of income might end up insuring that everyone's incomes are smaller than if less redistribution is pursued.
You might also like to view...
During the Financial Crisis of 2007-2009, banks significantly increased their holdings of excess reserves. What impact did this have on the money multiplier? How would the Fed change the monetary base if it wanted to maintain a stable money supply?
What will be an ideal response?
Compared to a perfect competitor, the colluding oligopolist
A. charges a higher price. B. has a higher ATC and is therefore less efficient. C. restricts output. D. All of the choices are correct.
Without usury laws, banks will
A) charge very high interest rates to all borrowers. B) charge higher interest rates to riskier borrowers than to safer borrowers. C) charge very low interest rates to all borrowers. D) face no demand for loans.
The prisoners' dilemma has an equilibrium in which
A) both players deny. B) both players confess. C) the player who confesses wins. D) the player who denies wins.