Some years ago New York City imposed rent controls in an effort to provide housing at “fair” prices for as many people as possible. The result was a serious shortage of housing and deterioration of existing rental properties. How would an economist have described the result in terms of economic efficiency?
What will be an ideal response?
Keeping the prices low discouraged the construction of housing in the city and the upkeep of existing housing. Interfering with free markets by preventing rental prices to increase prevented the market from reallocating sufficient resources to help cut down the shortage of housing efficiently. As a result, the MU of additional rental units exceeds the MC of production, but since the price is kept artificially low, landlords have little incentive to build new apartments.
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Assume declining profits in the market for Internet service force several firms in the area to drop out of the market Which of the following best describes the effect of the reduction in the number of service providers and the subsequent adjustment of the market to the new equilibrium price and quantity?
A) Quantity supplied would decrease, creating excess supply at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal. B) Quantity supplied would decrease, creating excess demand at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal. C) Supply would increase, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached. D) Supply would decrease, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.
How did Keynes propose to solve the problem of high unemployment?
A) Increase the growth rate of the money supply. B) Allow wages to decline, so that firms will want to hire more workers. C) Put on wage and price controls, so wages won't rise and firms won't have to lay people off to cut costs. D) Have the government increase its demand for goods and services.
In the U.S. economy, building human capital is more important than building physical capital
a. True b. False Indicate whether the statement is true or false
The economic way of thinking is
a. a set of historical generalizations that indicates what goods should be produced. b. a body of statistical data that indicates how an economy should be organized. c. a set of basic concepts that helps one understand human choices. d. a set of complex, highly abstract theories that provides persons skilled in statistics with the information necessary to tell others what choices they should make.