Explain why market power leads to a deadweight loss. Is the total deadweight loss from market power in the United States large or small?
What will be an ideal response?
Market power allows a firm to set its price above marginal cost, which creates deadweight loss. Research suggests that in the United States total deadweight loss from market power is fairly small, perhaps less than one percent of GDP.
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In the definition of GDP, "market value" refers to
A) valuing production in production units. B) not counting intermediate products. C) valuing production according to the market price. D) when the production took place.
Suppose Congress increased spending by $100 billion and raised taxes by $100 billion to keep the budget balanced. What will happen to real equilibrium GDP?
A) There will be no change in real equilibrium GDP. B) Real equilibrium GDP will fall. C) Real equilibrium GDP will rise. D) Real equilibrium GDP will initially rise, but then fall below its previous equilibrium value.
In which of the following years was a tax cut ineffective in stimulating aggregate demand?
a. 1964 b. 1975 c. 1981 d. 1999
As the unemployment rate falls,
A) the proportion of the unemployed finding a job increases. B) the separation rate increases. C) the young and unskilled experience larger-than-average decreases in unemployment. D) both A and C. E) all of the above