After the Arab oil embargoes, there was concern about the impact of higher gas prices on the low-income worker. The government imposed price controls on oil to protect the poor from this situation. Explain the inefficiency of this price ceiling and how taxes, rather than prices, could be used to solve the problem.
What will be an ideal response?
By preventing the price of gas from rising to its new equilibrium, gas could not be allocated to those most willing to pay. Hence, long lines formed and gas was rationed by waiting time rather than solely by price. In some cases, producers were able to extract higher amounts from those most willing to pay. By selling only to “regular customers” or to those willing to buy overpriced car washes, the wealthy could get gas while the poor did without or experienced very long waits. The alternative is to let the market price the gas and use the tax system to redistribute income to the poor to offset their loss in purchasing power due to higher gas prices. This allows rich and poor to put their money where they get the most marginal utility.
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Studies have shown that smoking cigarettes can cause heart disease. Assume this is true, and favorable weather has increased the tobacco harvest in North Carolina. In the market for cigarettes, these two developments would
A) increase demand and increase supply resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price of cigarettes. B) decrease demand and decrease supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of cigarettes. C) decrease demand and increase supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of cigarettes. D) decrease demand and increase supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of cigarettes.
The stage of industrial development during the early part of the 20th century is usually referred to as Fordism. The characteristics of this system include all of the following except
(a) Moving assembly-line production (b) Mass production of relatively inexpensive consumer goods (c) The extensive use of skilled labor to produce complex consumer goods (d) Consumer durable goods purchased on installment credit
Stackelberg Leader-Follower duopolists face a market demand curve given by P = 90 - Q where Q is total market demand. Each firm can produce output at a constant marginal cost of 30 per unit. The equilibrium price and quantity for the total market will be
A. Q = 40, P = 50. B. Q = 45, P = 45. C. Q = 30, P = 60. D. Q = 60, P = 30.
Today, in the United States, exports are about
A. 13 percent of GDP. B. 28 percent of GDP. C. 4 percent of GDP. D. 90 percent of GDP.