What is government failure, and how would it be demonstrated on a production possibilities curve?
What will be an ideal response?
Government failure occurs when government intervention fails to improve economic outcomes. The production possibilities curve represents the alternative combinations of output that are attainable given the available resources and technology. Government failure means that government intervention has moved the economy to a less optimal point on the production possibilities curve or to a point inside the curve.
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What is the economic problem? How does a command economy solve the economic problem?
What will be an ideal response?
A special interest issue is one that:
a. provides large private benefits and large social benefits
b. provides small private benefits and large social benefits.
c. provides large benefits to each of a small number of people and small costs to each of a large number of people.
d. provides small benefits to each of a small number of people and large costs to each of a large number of people.
Which of the following is true about the Fed?
A. It has a lot of power to affect the inflation rate, but not the unemployment rate. B. It cannot directly affect the economy but it can influence institutions that can affect the economy. C. It has more power to affect the economy than any other institution. D. It has no real power since in the long run, money is neutral.
Refer to the above diagram illustrating a market for pollution rights in which government has fixed the supply of rights at 1,000 tons. If there were no market for pollution rights in this case, the volume of pollutants discharged would be:
A. zero. B. 2,000 tons. C. 1,000 tons. D. 1,500 tons.