Explain the economic fallacy in the statement: “If the Jones family would just cut up their credit cards and live within their means, they’d be better off. And if consumers in this nation cut up their credit cards and lived within their means, the

nation would be better off.”

Please provide the best answer for the statement.


This is an example of the fallacy of composition. Cutting up credit cards may be good for the Jones family depending on their circumstances. If they have taken on too much debt and are in financial trouble, then cutting up credit cards would reduce their impulses to spend money. But if all consumers cut up their credit cards this action would reduce consumer spending in the economy because there would be fewer transactions and it would make the economy less efficient. Economic growth would decline because of the reduced consumer spending.

Economics

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In the above figure, if D2 is the demand curve, then a price of P3 would result in

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Economics

Refer to Scenario 10.3. Compared to a competitive red herring industry, the monopolistic red herring industry

A) produces more output at a higher price. B) produces less output at a higher price. C) produces more output at a lower price. D) produces less output at a lower price. E) not enough information to relate the monopolistic red herring industry to a competitive industry.

Economics

According to the Coase theorem, in order to solve a negative externality problem efficiently,

a. the property right must be assigned to the party with the least-cost alternative b. the property right must be assigned to the victim of pollution c. transaction costs must be high d. transaction costs must be low e. property rights must be determined by the courts

Economics