Policy makers often use taxes and subsidies to address market failure in medical care. A good example of this policy is the tax exemption to encourage employers to offer insurance to their workers. Which statement is true about this tax policy?
a. The policy encourages employees to purchase the amount of insurance they would choose to buy without the incentive.
b. The policy has resulted in employees demanding more than the optimal level of insurance coverage.
c. The policy has led to the market providing the optimal level of medical care.
d. The policy provides conclusive evidence that government action improves market outcomes.
e. The policy had little effect on the expansion of employer-sponsored insurance.
b. The policy has resulted in employees demanding more than the optimal level of insurance coverage.
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If the local cable TV company is a natural monopoly and required by regulators to set its price equal to marginal cost, there is a deadweight loss in the market and the firm might need a government subsidy to survive
Indicate whether the statement is true or false
Which of the following is true if the opportunity cost of producing a particular good is less than its accounting profit?
A. Economic profit is zero. B. Economic profit is negative. C. Economic profit is positive. D. Economic profit cannot be determined.
Suppose a family is holding $1000 in its checking account for normal transactions, $500 in cash for emergencies, and $1500 as a store of value when the interest rate is 4 percent
If the interest rate rises to 10 percent, which of the following patterns of holding money would be most likely and why? A) Transactions demand—$1000; Precautionary demand—$350; Asset demand—$500, because the opportunity cost of holding money has increased. The reduction money balances held as an asset is greatest because interest-bearing assets are much more attractive when interest rates are higher. B) Transactions demand—$500; Precautionary demand—$500; Asset demand—$1400, because the opportunity cost of holding money balances has risen. The reduction in money balances held for transaction purposes falls the most because people start using credit cards more when the opportunity cost of holding money increases. C) Transactions demand—$1000; Precautionary demand—$500; Asset demand—$500, because only the asset demand is responsive to changes in the interest rate. D) Transactions demand—$800; Precautionary demand—$600; Asset demand—$1500, because people can economize on their money balances for making transactions, but the possibility of an emergency increases with the interest rate. People will also expect rates to go higher, so they will hold money as an asset until the rates increase further.
What entity or entities take the necessary steps to increase or decrease the money supply?
a. commercial banks b. the central bank c. investment firms d. pension plans