In a free-market economy, the pricing mechanism always operates to
A. produce an equitable distribution of income.
B. provide an efficient allocation of resources.
C. correct any inequality in distribution of output.
D. equate consumers’ desires with ability to pay.
Answer: B
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A model of choice in economics starts by assuming that:
a. people try to minimize their losses. b. people try to maximize their consumption. c. people try to minimize their costs. d. people try to maximize their utility.
An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease
According to the substitution effect of labor supply, when the wage rate goes up:
A. it becomes more costly to consume leisure, so people will work more. B. it becomes less costly to consume leisure, so people will work more. C. the opportunity cost of enjoying leisure goes down. D. firms will hire more workers since people are more willing to work.
The statement "other things being equal" in the law of demand means all of the following remain constant EXCEPT
A) consumer income. B) the price of the good concerned in the law of demand. C) the prices of substitutes. D) tastes and preferences.