What are “coordination failures” and why are they important for interpreting the macro economy?
What will be an ideal response?
These failures occur when people are unable to reach a mutually beneficial arrangement or equilibrium because they are unable to coordinate their actions. If everyone waits for others to take action or do something (attend a party, volunteer, participate in a project), then no one will benefit because the action was not taken because everyone is waiting to see what others do. In the economy, if businesses wait to increase their investment spending until they have evidence that other businesses are increasing their investment spending, then there is not likely to be an increase in investment spending. These perceptions and decisions can be harmful to the economy, and reduce aggregate demand. There is just no mechanism in the economy to coordinate decisions so there are mutual benefits.
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Compared to people in other nations, people in the United States pay
A. much higher taxes. B. somewhat higher taxes, on average. C. about the same amount taxes. D. lower taxes.
If a good is normal and its price increases,
a. the income effect will be positive and the substitution effect will be positive. b. the income effect will be negative and the substitution effect will be negative. c. the income effect will be positive and the substitution effect will be negative. d. the income effect will be negative and the substitution effect will be positive.
About how much U.S. and European trade is intra-industry?
a. 40% b. 50% c. 60% d. 70%
If the government charged a tax on monopolists equal to, say, 75 percent of their economic profits, what would happen to the level of output the firm would produce? What about the price? Explain.
What will be an ideal response?