Suppose the government currently places tariffs and/or other import restrictions on good X. Will imposing a tariff and/or trade restriction on good Y necessarily reduce overall social welfare for the economy?
What will be an ideal response?
No, this follows from the contrapositive of the Theory of the Second Best. If removing one market distortion while leaving others in place may increase or decrease social welfare, the same is true for adding a market restriction while others are in place.
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It is possible that if a monopoly is broken up, the cost of production for that product could increase.
Answer the following statement true (T) or false (F)
The principle of diminishing marginal utility can be used to explain why
A) Bob's second soda is less enjoyable than his first soda. B) Bob's first soda is less enjoyable than his second soda. C) Charlie enjoys his fourth soda less than Bob enjoys his first. D) Bob enjoys his first soda more than Charlie enjoys his fourth.
In the new classical model, all wages and prices ________
A) are completely flexible with respect to expected changes in the price level B) are fixed with respect to expected changes in the price level C) are flexible with respect to the value of the dollar D) are fixed with respect to the money supply
Assuming mustard and burgers are complements, a decline in the price of burgers will
A) decrease the demand for burgers. B) decrease in the quantity demanded of burgers. C) increase the demand for mustard. D) decrease the demand for mustard.