Explain why advertising that results in spuriously differentiated products may result in a deadweight loss to total welfare
What will be an ideal response?
The firm spends money to steal customers from a rival. This additional expense only results in a transfer from one producer to another. The firm that advertises gains, the rival loses and the advertising expense can be thought of as part of deadweight loss. The advertising expense does nothing productive from a social point of view.
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Suppose the U.S. economy is producing at the natural rate of output. A depreciation of the U.S. dollar will cause ________ in real GDP in the short run and ________ in inflation in the short run, everything else held constant
(Assume the depreciation causes no effects in the supply side of the economy.) A) an increase; an increase B) a decrease; a decrease C) no change; an increase D) no change; a decrease
In the above figure, the farmer faces a trade-off between beans and wheat equal to
A) one-to-one. B) three-to-one. C) one-to-two. D) one-to-four.
An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?
a. The actual MPC was larger than the MPC the aide used to compute the multiplier. b. The aide thought the tax cut would be permanent, but the actual tax cut was temporary. c. The increase in income shifted money demand less than the aide had anticipated. d. The increase in income resulted in investment rising more than the aide had anticipated.
Figure 11-3
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In Figure 11-3, which line represents the change in the consumption schedule caused by an increase in the personal income tax?
A. C1 in graph (a) B. C2 in graph (a) C. C1 in graph (b) D. C2 in graph (b)