Consider an intersection on a country road. Cars could negotiate with each other by waving to each other to pass or we could have stop signs or we could have yield signs. Which of these makes the most sense on a country road and what difference would it make if the intersection was in the city?
What will be an ideal response?
The negotiation costs of waving to each other would be troublesome because both may wave the other through and then neither can go. These negotiation costs are too high so it would be better to have a yield sign for one direction and no stop sign for the other. This allows for easy passage and one only need to yield if another car was coming. Country roads have little traffic so the most efficient solution is a yield sign. Cities have heavy traffic in all directions and negotiations at each intersection would have prohibitive costs. Yield signs would make it hard for those yielding to ever get through a busy intersection. Therefore, four way stop signs or lights are the most efficient.
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Indicate whether the statement is true or false
A change in the public's desire to hold money will
A) shift the IS curve. B) change the slope of the IS curve. C) shift the LM curve. D) change the slope and position of the LM curve.
What should happen to the equilibrium price and quantity in a market as a result of a tariff on imports?
A. Equilibrium price should go down, and equilibrium quantity should go up. B. Equilibrium price and quantity should both go down. C. Equilibrium price and quantity should both go up. D. Equilibrium price should go up, and equilibrium quantity should go down.
Refer to the information provided in Figure 17.2 below to answer the question(s) that follow. 
Figure 17.2 Refer to Figure 17.2. We would say that Sam is risk neutral based on his
A. income potential. B. utility from income. C. present income. D. past income.