"Given that most people like to get ‘free stuff,' it follows that goods that are available free of charge are produced and consumed in the proper amounts in a market economy.". What is wrong with this statement?
In the absence of government intervention, private markets cannot ensure that goods without prices are produced and consumed in the proper amounts; that is, private markets usually lead to an inefficient allocation of resources when goods are available free of charge.
You might also like to view...
Suppose the economy is initially at equilibrium, in which total planned real expenditures equals real GDP. Which of the following will occur if there is an increase in autonomous investment?
A) Inventories will decrease immediately and production of goods and services will increase until real GDP catches up with total planned real expenditures. B) Inventories will increase immediately and production of goods and services will decrease until real GDP catches up with total planned real expenditures. C) Inventories will not change and production of goods and services will not change either. D) Both inventories and production of goods and services will increase.
Which of the following will NOT result from an unsterilized intervention in which the central bank sells foreign assets to purchase domestic currency?
A) Domestic interest rates will rise. B) The foreign-exchange value of the domestic currency will rise. C) The central bank will experience a decrease in international reserves. D) The domestic money supply will rise.
The slope of the consumption function relates changes in consumer spending to changes in disposable income received by consumers. This is called:
a. the marginal propensity to consume. b. the average propensity to consume. c. the utility-maximization function. d. the marginal rate of transformation.
An example of the specificity rule in action is
A. imposing price floors on "clean" products as a way to increase the demand for these products. B. taxing the production of a product whose production creates a great deal of pollution. C. taxing the consumption of a product whose production creates a great deal of pollution. D. restricting imports to reduce environmental pollution.