Explain how redistributing income creates a deadweight loss
What will be an ideal response?
When income is redistributed from a richer person to a poorer person, both parties are affected. The richer person, who loses income, will pay a higher tax on earned income. This higher tax decreases the opportunity cost of leisure time (time spent not working) so the person will take more leisure time and work less. For the poorer person who gains income, the income transferred (say, welfare payments) will be reduced when the person earns more income. As a result, the poorer person also has less incentive to work. Because both the richer person and the poorer person have less incentive to work when the government administers income redistribution, there is created a deadweight loss, that is, a decrease in efficiency to society.
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The aggregate expenditure model predicts a business cycle expansion occurs when
A) the aggregate planned expenditure curve shifts downward. B) aggregate supply increases. C) induced expenditure decreases. D) autonomous expenditure increases. E) potential GDP increases.
For quantity exchanged to decrease, but the price to rise, there must have been a(n)
a. increase in demand. b. decrease in demand. c. increase in supply d. decrease in supply.
Domestic producers prefer quotas to tariffs because quotas raise the price of imports and tariffs do not.
Answer the following statement true (T) or false (F)
Which of the following is NOT an objective of economic regulation?
A. to keep rates of return in an industry at a competitive level B. to prevent monopoly profits C. to fix prices so that they are never allowed to rise D. to regulate the prices enterprises are allowed to charge