Explain the principle of the "second best."
What will be an ideal response?
The principle of second best rests on the fact that just because a tax distorts an economic decision does not always imply that such a tax imposes an excess burden. If previously existing distortions exist, such a tax may actually improve efficiency.
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When economists say an activity is consistent with economic efficiency, they mean
a. a majority of citizens favor the activity. b. the benefits that result from the activity exceed the costs. c. the number of people who gain from the activity exceeds the number on whom costs are imposed. d. the costs that result from the activity exceed the benefits.
Amanda decides to buy a dress that Hillary has for sale; they both agree on a price of $20 for the exchange. Which of the following best describes who gains and who loses from the trade?
a. If the dress originally costs more than $20, Amanda gains and Hillary loses. b. If the dress originally costs less than $20, Hillary gains and Amanda loses. c. Both parties expect to gain from this transaction. d. If Hillary gains from the transaction, Amanda must lose an equal amount.
A line graph that shows rising and falling profits over several years would have a(n)
a. A 90 degree slope b. downward slope c. varied slope d. almost level slope
The aggregate supply curve is shifted to the left ( inward) by
A. an increase in the price of any input to the production process. B. a decrease in the price of any input to the production process. C. the price of any input staying the same. D. None of the above is correct.