Give two examples of activities, one legal and one illegal, that would be part of the underground economy. Explain why each example is considered an underground activity. Avoid giving examples from the text.
What will be an ideal response?
Examples will vary, but should show a thorough understanding of what the
underground economy is. For example, a legal activity would be a person going from
house to house offering to clean gutters and wash windows. The person does not report
any money he or she earns to the government. As a result, these earnings are not
reflected in the GDP. An illegal activity would be a person who sells stolen goods, such
as diamonds or computers, on the black market. The profit gained from these sales is
unreported and, thus, does not show up on the GDP.
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A famous opera star made $2 million per year. He said he would rather sell insurance if he couldn't make more than $100,000 per year. If he is telling the truth, what's his opportunity cost as an opera star?
A) $2.0 million B) $100,000 C) $1.9 million D) $2.1 million
A competitive market economy is unlikely to provide an efficient quantity of some public goods because:
a. only the government has the vast resources necessary to produce public goods. b. the nature of public goods makes it difficult for producers to withhold them from nonpaying consumers. c. the technology involved in the production of public goods makes it difficult for private firms to produce them even though, once produced, they could be marketed efficiently. d. private production of public goods generally results in a large amount of profit, which is difficult for a firm to effectively pay out to shareholders.
The text argues that if avocado growers in Mexico can produce avocadoes cheaper than avocado growers in the United States, this will not reduce total jobs available in the United States. The logic underlying this argument is that
A. avocado growers in Mexico need the jobs more than Americans do. B. avocado growers in the United States will switch to specializing in a crop in which they hold the comparative advantage. C. avocado growers in the United States did not earn much anyway. D. avocado growers in the United States are welcome to emigrate to Mexico.
If a nation imposes tariffs and quotas on foreign products, the immediate effect will be to:
A. reduce the rate of domestic inflation. B. increase efficiency in the world economy. C. increase domestic output and employment. D. reduce domestic output and employment.