Define the term deadweight loss. Will there be a deadweight loss if a good's marginal cost exceeds its marginal value? Explain.
What will be an ideal response?
A deadweight loss occurs when social gain is not as large as possible; it represents potential gains from trade that were not created. If the marginal cost of a good exceeds its marginal value, then the last unit produced costs more than what consumers are willing to pay for it. In this case, the last unit represents a net loss and unnecessarily lowers social gain, so cutting back production of the good will increase social gain. Therefore, social gain is not as large as possible and a deadweight loss exists.
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Assume that you are a policy adviser who believes that money demand is highly interest-sensitive but investment is not. Asked your advice on how to pull the economy out of a recession, you are likely to emphasize
A) contractionary monetary policy. B) expansionary monetary policy. C) contractionary fiscal policy. D) expansionary fiscal policy.
Which of the following is a characteristic of a monopoly?
a. a large number of sellers b. homogeneous products c. large barriers to entry d. price taking firms
By saying that the equation of exchange is an accounting identity, we mean that
A. it explains the effect of questionable accounting practices on macroeconomic performance. B. it identifies the key national income accounts. C. it is always true. D. it is useful for accountants, but not for economists.
Refer to the information provided in Table 31.1 below to answer the question(s) that follow.Table 31.1PeriodQuantity of Labor (L)Quantity of Capital (K)Total Output (Y)1 50 50 2002 60 50 2203 70 50 2354 80 50 245Refer to Table 31.1. From Period 2 to Period 3, the marginal return to labor is equal to
A. 0.67. B. 1.5. C. 3.36. D. 3.76.