Explain reasons that may make payments based on marginal productivity have widely varied results.
What will be an ideal response?
Income derived from payments according to marginal productivity may sound fair,
but it may lead to very unequal incomes because ownership of resources is initially
divided unequally. For example, individuals have different opportunities to obtain
education and training. Some individuals inherit property; in contrast, others may have
physical or mental disabilities. In addition, imperfections in labor markets (e.g., unions
and licensing restrictions) can lead to factory owners not receiving income according to
their marginal productivity. Discrimination can also distort the linkage between income
and marginal contribution to output.
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According to your textbook, what is the general rule to follow in order to maximize net revenue?
A) Take any action if, but only if, the expected marginal revenue exceeds the expected marginal cost. B) Take any action you expect will not be copied by your competitors. C) Take as many innovative actions as you can, and leave the copying up to smaller firms in the market because they are least likely to increase their market share. D) Charge the lowest possible price.
Define the concept used in economics known as Ockham's Razor
What will be an ideal response?
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
a. fewer reserves, so the reserve ratio will fall. b. fewer reserves, so the reserve ratio will rise. c. more reserves, so the reserve ratio will fall. d. more reserves, so the reserve ratio will rise.
Lower real income ________ the demand for money and a lower price level ________ the demand for money.
A. decreases; decreases B. increases; decreases C. increases; increases D. increases; does not change