If the government sets a specific tax and an ad valorem tax so that they raise the same amount of tax revenue, why does the ad valorem tax reduce output less than the specific tax?
What will be an ideal response?
While the per unit amount of the specific tax stays constant, the ad valorem tax, on a per unit basis, increases with price. The demand with the ad valorem tax is more inelastic than the demand curve with the specific tax. Output is reduced less along the more inelastic curve.
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Which of the following should be used to compare the incomes of countries with equal population but different unemployment rates?
A) Gross national product B) PPP-based measure of income per capita C) Income per worker D) Exchange rate-based measure of income per capita
The fact that indifference curves are bowed in toward the origin
A) is not true. B) follows from the fact that more is preferred to less. C) follows from the property that the consumer likes diversity in his or her consumption bundle. D) follows from the property that consumption and leisure are normal goods.
In the equilibrium version of the classical model, the velocity of money
a. depends on the real rate of interest. b. depends on the level of employment. c. is equal to the Cambridge k. d. is stable in the short run.
The average variable cost curve slopes upward with a higher rate of output in the short run because of
A. Implicit but not explicit costs. B. The shape of the average fixed cost curve. C. The effect of diminishing returns. D. Diseconomies of scale.