Explain the terms "paternalism" and "consumer sovereignty."
What will be an ideal response?
Consumer sovereignty is the view that choices made by a consumer reflect his or her true preferences, and outsiders, including the government, should not interfere with these choices, even if there is evidence that these choices might ultimately have negative consequences for the consumer. Paternalism is the view that consumers do not always know what is best for them, and the government should encourage or induce them to change their actions.
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If all goods are essential, a consumer will optimize at an interior solution.
Answer the following statement true (T) or false (F)
A perfectly competitive firm has to charge the same price as every other firm in the market. Therefore, the firm
A) faces a perfectly elastic supply curve. B) is not able to make a profit in the short run. C) faces a perfectly inelastic demand curve. D) is a price taker.
Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4
(a) What is the nominal exchange rate? (b) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change? (c) Suppose the nominal exchange rate rises by 5%, the real exchange rate rises by 8%, and domestic inflation is 3%. What is the foreign inflation rate?
Consider a good whose own price elasticity of demand is 0 and price elasticity of supply is 1. The fraction of a specific tax that will be passed through to consumers is ________
A) 0 B) 0.25 C) 0.5 D) 0.75 E) 1