If a perfectly competitive firm is producing at its profit-maximizing output in the short run and fixed costs decline, the firm should
A. Use less capital but increase output by hiring more labor.
B. Not change output.
C. Increase output.
D. Reduce output.
Answer: B
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Consider a worker who consumes a composite consumption good (on the vertical axis) and leisure hours (on the horizontal axis).
a. Suppose the worker has 80 hours of leisure per week and can earn a wage of $50 per hour. Illustrate the worker's weekly budget constraint. b. In order to close the deficit, the government introduces a broad-based consumption tax on all consumer goods -- raising the price of the consumption good by 20%. Illustrate the new budget constraint faced by our worker. c. On your graph, indicate the level of tax revenue raised by this broad-based consumption tax. d. Using your graph, discuss why this tax is inefficient. e. In this model is there any difference between the consumption tax and a wage tax? What is different about the real world that would change your conclusion about this? What will be an ideal response?
A major difference between the costs of unemployment and the costs of inflation is that
A) the former is structural the latter frictional. B) the government pays the latter, the population pays the former. C) unemployment costs are concentrated among a few people, while inflation costs are distributed more broadly across the entire population. D) unemployment costs are distributed among people, while inflation costs are distributed more narrowly across the entire population.
Which of the following is included in the GDP?
A) the current services flowing from the housing stock B) the estimated value of drugs sold illegally C) the estimated value of leisure time D) transfer payments such as Social Security and veterans' benefits E) private purchases of used assets
When the number of substitutes increase, the demand curve for a monopolist will
A) not change. B) become more elastic. C) become more inelastic. D) become steeper.