Suppose that the market for steel is shown in the above figure. What specific tax would result in a competitive market producing the socially optimal quantity of steel?
What will be an ideal response?
The social optimum occurs when 50 ingots are produced. At this level, the marginal external cost is $50. Thus, a specific tax of $50 will yield the socially optimal quantity.
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Suppose that medical researchers discover a new drug which slows the aging process, allowing the average life span in the United States to increase to 95 years of age. The permanent-income hypothesis suggests that
A) consumption spending would increase since lifetime income increases. B) consumption spending would increase since estimates of permanent income would increase. C) consumption spending would decrease since savings would rise to provide income for the longer retirement periods. D) None of the above is correct since predicted future annual incomes may not change.
A microeconomist would study
a. a general decline in prices b. a rise in tea prices. c. the ups and downs of business cycles d. the impact of national tax policies
According to the classical model, investment
A. is influenced by the money illusion at low income levels. B. is inversely related to the interest rate. C. is a function of real GDP. D. is a function of the nominal GDP.
Unemployment that deviates from the natural rate of unemployment is referred to as
A. structural unemployment. B. seasonal unemployment. C. cyclical unemployment. D. frictional unemployment.