How does the market mechanism answer the WHAT, HOW, and FOR WHOM questions?
What will be an ideal response?
The market mechanism answers the WHAT question through the indirect interactions of producers and consumers. Market prices and sales signal the desired output. Producers desire to maximize profits and look for the least-cost method of production. This answers the HOW question. The market distributes output to the highest bidder and in doing so answers the FOR WHOM question.
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Suppose the saving rate is initially greater than the golden rule saving rate. We know with certainty that an increase in the saving rate will cause
A) an increase in the rate of growth in the long run. B) a reduction in output per worker. C) a reduction in consumption per worker. D) all of the above E) none of the above
Which of the following statements is TRUE of external costs?
A. There are no good ways to correct for external costs. B. When external costs exist, the price of the good will be deceptively low leading to an overallocation of resources. C. External costs should only be corrected for if the correction will not increase the market price. D. External costs should not be corrected since people will bear the costs whether they are corrected or not.
Answer the following questions true (T) or false (F)
1. A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal. 2. The economic model of consumer behavior explains how consumers' tastes and preferences are formed. 3. To maximize utility consumers should buy goods and services to the point where the marginal utility of each item consumed is maximized.
Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending, as in the 2001 recession, than in a recession caused by an increase in oil prices, as in the 1974-75 recession?
What will be an ideal response?