Why is a consumer's satisfaction maximized when the marginal benefit from the last dollar spent on one good is equal to the marginal benefit from the last dollar spent on another good?
What will be an ideal response?
The marginal benefit from each additional dollar spent should be equal across various goods in order to maximize overall well-being. If these marginal units (last units) of satisfaction are not equal, then the consumer can be made better off by shifting consumption toward the good that yields more satisfaction at the margin. Hence, equilibrium occurs at the point where satisfaction from the last dollar spent is equal for all goods. This is the reasoning behind the old phrase "getting the most bang for the buck."
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Identify the correct definition of the federal funds rate
A) The federal funds rate is the interest rate at which the Fed lends money to households. B) The federal funds rate is the interest rate at which banks lend money to the Fed. C) The federal funds rate is the interest rate at which banks lend their deposits with the Fed to other banks. D) The federal funds rate is the interest rate at which the Fed lends money to business firms.
The interest rate banks charge each other on loans of reserves is called the
A) required reserve rate. B) discount rate. C) real interest rate. D) coupon rate. E) federal funds rate.
With a natural monopoly,
A) no regulation is necessary because it is a natural monopoly. B) regulation takes the form of forcing competition from new firms. C) regulation takes the form of forcing the company out of business. D) regulation can take the form of average cost pricing to allow coverage of costs. E) regulation takes the form of breaking the company into several competing firms.
If there are only two goods in the economy, one whose price rises by 3 percent and one by 5 percent, it is possible that inflation is:
A. 4 percent. B. 5 percent. C. 3 percent. D. 7 percent.