Which of the following statements is correct and which is not? Explain why.
a. When we all face the same prices, our tastes become the same.
b. When we all face the same prices, our tastes become the same at the margin.
What will be an ideal response?
The correct statement is statement (b). When we all face the same prices, we all optimize where our MRS is equal to the same value, the negative price ratio. Thus, our MRS --- our "tastes at the margin" --- is the same as a result of the decisions we make when we face the same prices. But there is nothing about the fact that we all face the same prices that changes our indifference maps --- or our tastes. Thus, we are as different in our tastes before we face the same prices as we are afterwards.
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a. downward-sloping; horizontal. b. downward-sloping but relatively flat; downward-sloping but relatively steep. c. horizontal; downward-sloping. d. horizontal; vertical
The quantity of savings that people are willing to supply will depend on:
A. the amount they have left over after consumption. B. their age, since people tend to stop saving once they retire. C. their disposable income. D. the price they will receive.
When airplanes take off and land at Logan airport, residents of East Boston complain about the noise. The same planes make the same noise during the trip to Boston from Paris, but there are no ____ for most of the trip because ____.
A. free riders; passengers must pay to board the plane B. third parties; there are no externalities C. externalities; there are no third parties D. complaints; airplanes are insulated
Assume the standard trade model with two countries (Alpha and Beta), two goods (food and drink), and two factors of production (land and labor). Further assume that Alpha is relatively labor-abundant and drink is relatively labor-intensive. Which of the following is most likely to happen in the long run following the opening of free trade between the countries?
A. The workers in Alpha will be better off but the landowners will be worse off. B. The workers and landowners in the food industry in Alpha will be better off while the workers and landowners in the drink industry will be worse off. C. The workers in Beta will be better off while the landowners will be worse off. D. The workers and landowners in the food industry in Beta will be better off while the workers and landowners in the drink industry will be worse off.