Use a pizza pie analogy to discuss the trade off between income equality and economic efficiency
What will be an ideal response?
The total pie represents total income. Each pizza slice represents the income going to each person based on the person’s contribution to income. Now if there is redistribution, then the size of a slice will be changed. Those who contribute more will now have a smaller size and those who contribute less will now have a large slice. The question is what happens to people’s motivation to contribute. If the redistribution of income causes people who contribute more to now contribute less because of reduced incentives to work, save and invest, then there can be an efficiency loss for society. In this case, the size of the pie will shrink. Society has to decide how much of a loss in income it will allow to achieve the objective of redistributing income.
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Suppose a perfectly competitive firm's minimum average variable cost is $3 when it produces 50. If the price is $2 and the firm's marginal cost is $2, the firm should
A) continue to produce, but produce more than 50. B) continue to produce 50. C) continue to produce, but produce less than 50. D) shut down. E) continue to operate, but to determine the amount of production needs more information than is given.
One reason stagflation is difficult to recover from is because:
A. less output requires less inputs to be hired. B. prices tend to adjust more quickly downward than upward. C. wages are sticky downward. D. input prices increase with output prices.
A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to decrease barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies do most economists say promote growth?
a. both the first and the second b. the first but not the second c. the second but not the first d. neither the first nor the second
The short-run equilibrium price level and real GDP is derived where the short-run aggregate supply (SRAS) curve intersects the long-run aggregate supply (LRAS) curve
Indicate whether the statement is true or false