Suppose people freely choose to spend 40 percent of their income on healthcare, but then the government decides to tax 40 of a person's income to provide the same level of coverage as before. What can be said about deadweight loss in each case?
A. Taxing income results in deadweight loss, and purchasing healthcare on one's own doesn't result in deadweight loss.
B. There is no difference because the goods are purchased in the market in either case.
C. Taxing income results in less deadweight loss because government knows better what healthcare coverage is good for society.
D. There is no difference because the total spending remains the same and the healthcare purchased remains the same.
Answer: A
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A. expansionary; increasing government purchases B. expansionary; increasing transfer payments C. recessionary; increasing taxes D. recessionary; increasing government purchases
The equilibrium price in a market occurs where the:
A) market demand and the firms' average cost curves intersect. B) market supply and the firms' average cost curves intersect. C) market demand and the market supply curves intersect. D) market supply and the firms' revenue curves intersect.
What happens when the Fed sells government bonds?
A) The money supply tends to rise. B) The money supply tends to remain unchanged. C) The money supply tends to fall. D) The U.S. budget deficit necessarily rises.
All else constant, as the amount of a firm's implicit costs increases, the difference between economic profit and accounting profit will:
A) increase. B) stay the same. C) decrease. D) cannot be determined without more information.