What is the Principal of Optimization at the Margin? Explain with an example
What will be an ideal response?
The Principal of Optimization at the Margin states that an optimal alternative has the property wherein moving to it makes the decision maker better off, and moving away from it makes the decision maker worse off. For example, if an individual has to choose between alternative apartments, she will choose moving toward the apartment that lowers her total cost, and moving away from the apartment that increases her total cost. Such an apartment will be an optimal choice according to the Principal of Optimization at the Margin.
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In the foreign exchange market, how does the quantity of U.S. dollars demanded respond to a change in the U.S. exchange rate? Why is there this response?
What will be an ideal response?
The reserve ratio is 20 percent. If the Fed buys $1 million of U.S. government securities from a bond dealer by transmitting the funds to the dealer?s deposit account at Bank ABC, then
A) Bank ABC can make no additional loans. B) Bank ABC can make additional loans up to $800,000. C) Bank ABC can make additional loans up to $1 million. D) Bank ABC cannot make any additional loans, but the system as a whole can make additional loans up to $1 million.
By saving, households
a. are supplying loanable funds b. are demanding loanable funds c. are investing d. are acting as a financial intermediary e. must find a borrower
When government intervenes in the production process because external benefits exist, it typically attempts
A. to shift the market's demand curve to the left. B. to impose a tax on each unit produced. C. to shift the market's supply curve to the left. D. to shift the market's demand curve to the right.