How does the market mechanism distribute income?
What will be an ideal response?
The market mechanism distributes income through its payments to the factors of production. Everyone owns some potentially usable factors of production. Many people have only their own labor; but some people also have funds that they can lend, land that the owner can rent, or natural resources that they can sell at prices determined by supply and demand. So the distribution of income in a market economy is determined by the prices of the factors of production and by the amounts that are employed.
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If you talk to people who are addicted to alcohol, they will tell you that the more they consume, the more they long for and value the next drink. If you think about their sorry predicament in terms of utility analysis, you can conclude about their consumption of alcohol that
a. utility theory does not apply to alcohol b. total utility keeps decreasing as more is consumed c. marginal utility keeps increasing as more is consumed d. the law of diminishing marginal utility is present here e. total and marginal utility keep increasing as more is consumed, but total utility is always greater than marginal utility
Which of the following statements is not correct?
a. Medical research can be an example of a public good. b. The private market will tend to undersupply public goods. c. The free-rider problem occurs when a good is nonexcludable. d. All goods provided by the government are public goods.
The higher the after-tax wage, the greater the quantity of labor supplied.
Answer the following statement true (T) or false (F)
The Hawaiian island of Lana'i is privately owned by Castle & Cooke and for generations most of its land was used to grow pineapples. Now, many of the pineapple fields have been replaced by tourist accommodations, including a pair of world-class hotels and a top rated golf course. What would an economist say about this change in land-use patterns?
A. Economic rent has allocated the island's resources to their highest valued use: tourism. B. Agriculture is still the land's highest-valued and most efficient use, but tourism earns more profits for Castle & Cooke. C. To find the land's economic rent, add the price per acre that land on Lana'i would be worth if used to grow pineapples to the value per acre when used for a golf course. D. While growing pineapples used the island's land more efficiently, tourism provides utility to the largest number of people.