Explain why an equilibrium point in a free market is considered to be the socially efficient point. Sketch graph a situation where a government price ceiling below equilibrium leads to inefficiency. Explain in words why the inefficiency exists and shade in on your graph the lost benefit that creates the inefficiency.
What will be an ideal response?
At equilibrium all units for which benefit exceeded cost would be produced. Thus net benefit is maximized. As shown in Figure 2.6 in the text, at the ceiling equilibrium, output is under-produced so marginal benefits exceed the marginal cost.
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To an economist, the cost of a college education
a. includes the income that the student could have earned during the time spent in college. b. can be measured solely by the dollar cost of tuition, books, and other fees. c. includes only the cost of schooling, not the cost of housing and food. d. excludes financial aid in computation of the cost of schooling. e. All of the above are correct.
Suppose people anticipate an increase in the expected price level. Which curve(s) in the aggregate demand and aggregate supply model would be affected, and which way would it (they) shift?
The rational expectations concept is most closely associated with
A. Keynesians. B. Monetarists. C. Supply-siders. D. New classical macroeconomists.
Exhibit 5-7 GDP data (billions of dollars) Personal consumption expenditures$5,207 Interest425 Corporate profits735 Government spending1,406 Depreciation830 Rental income146 Gross private domestic investment1,116 Compensation of employees4,426 Exports870 Imports965 Indirect business taxes553 Proprietors' income520 Personal taxes886 Social Security taxes432 Transfer payments376 In Exhibit 5-7, disposable personal income (DI) is:
A. $5,127 billion. B. $5,608 billion. C. $6,254 billion. D. $6,495 billion.