Which of the following statements best describes the study of economics?
A. Economics studies how the Federal Reserve handles fluctuation in business cycles.
B. Economics studies how individuals and groups manage scarce resources.
C. Economics studies how people maximize returns in the stock market.
D. Economics studies how governments determine appropriate tax rates.
B. Economics studies how individuals and groups manage scarce resources.
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Explain for each event whether it changes the quantity of real GDP supplied, short-run aggregate supply, long-run aggregate supply, or a combination of them
What will be an ideal response?
Starting from long run equilibrium, in response to a decrease in AD: a. The price level will increase more in the long run than in the short run
b. The short run equilibrium level of real output will be greater in the long run than in the short run. c. Neither the price level nor real output will change in the long run. d. Both a. and b. are correct
If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:
a. a 40% increase in purchases by customers. b. a 40% decrease in purchases by customers. c. a 2.5% increase in purchases by customers. d. a 2.5% decrease in purchases by customers.
Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?
A. Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss. B. There is no difference because the goods are purchased in the market in either case. C. Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society. D. There is no difference because the total spending remains the same and the healthcare purchased remains the same.