Suppose the nation of Arcadia produces only two goods, teapots and surfboards. If Arcadia produces only teapots, it can make 40 per day. If Arcadia produces only surfboards, it can make 60 per day. What is the opportunity cost of 1 teapot in Arcadia?
A. 2/3 of a surfboard
B. 1.5 surfboards
C. 40 surfboards
D. 60 surfboards
Answer: B
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A) must be rejected. B) makes sense to economists, but not non-economists. C) is the correct definition of wealth. D) helps us understand the foundations of what Adam Smith called the commercial society.
If the Friedman rule for long-term monetary policy were implemented, the result would be
A) inflation. B) neither inflation nor deflation. C) deflation. D) hyperinflation.
Beginning from the full-employment level of real GDP, an increase in one of the components of the aggregate demand curve will increase the: a. average level of prices (CPI). b. unemployment rate
c. natural level of real GDP. d. level of investment spending. e. level of government spending.
Three difficulties that limit the usefulness of ownership in resolving incentive problems are:
A. wealth constraints, risk aversion, and free-riding. B. wealth constraints, risk aversion, and bundling. C. risk aversion, free-riding, and conflict of interests. D. wealth constraints, free-riding, and bundling.