One of the conditions mentioned in our formulation of the Ramsey Rule is that goods be unrelated in consumption. Do you think this is a reasonable assumption? If this condition does not hold, will the Ramsey Rule still work?
What will be an ideal response?
The assumption is reasonable, but not necessary. In advanced courses of Public Finance, the
Ramsey Rule is derived when goods are related.
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Refer to Variable Cost of Production. The marginal cost of the fourth unit of output is
The following questions refer to the following table which shows a firm's variable costs of production.
a. $20 per unit.
b. $30 per unit.
c. $50 per unit.
d. $80 per unit.
The law of comparative advantage implies that a doctor who is also a talented auto mechanic should
A. get a part-time job at a gas station. B. do his or her own auto repairs and those of his or her neighbors. C. hire a professional mechanic to repair his or her car. D. only repair the cars of other doctors.
On average, younger people have:
A. higher unemployment rates than older people. B. lower unemployment rates than older people. C. similar unemployment rates than older people. D. uncorrelated unemployment rates compared to those of older people.
In comparing a job that requires a high level of skill to one for a job that requires a low skill level, the high-skill job
a. will always command a higher wage than the low-skill job b. can command a higher wage only if there is sufficient demand for the output produced by the job c. will command a higher wage whenever the nonmonetary characteristics of the two jobs are equivalent d. will command a higher wage whenever there is a relatively low supply of labor with the required skill level e. will command a higher wage whenever the two labor markets are perfectly competitive