There are three goods produced in an economy by three individuals:GoodProducerOrangesOrchard ownerBreadBakerChocolateCandy MakerIf the orchard owner likes only bread, the baker likes only chocolate, and the candy maker likes only oranges, will any trade between these three persons take place in a barter economy? Explain.
What will be an ideal response?
Yes, but this is a good example of the high transaction costs that can occur in a barter economy due to the double coincidence of wants problem. Any one of the individuals will have to make two trades to get what he/she wants; for example, the baker will have to trade bread with the orchard owner to get oranges, to then be able to trade with the candy maker to obtain the chocolate that he/she really wants.
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Vertical equity incorporates the notion that
A. those earning higher incomes should pay more in taxes. B. those earning equal incomes should pay the same in taxes. C. taxes paid should be unassociated with income levels. D. there should be no excess burden created by a tax.
You receive an e-mail from a firm proposing the following business deal. They will send you $1,000 now, and in exchange you will send them $1,100 in one year. You will just break even from this deal if the interest rate is:
a. 12%. b. 4%. c. 6%. d. 10%.
What do structural reform policies emphasize?
What will be an ideal response?
French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be:
A. Supplying dollars and also supplying euros in the foreign exchange market B. Demanding dollars and also demanding euros in the foreign exchange market C. Supplying dollars and demanding euros in the foreign exchange market D. Supplying euros and demanding dollars in the foreign exchange market