Cigarette advertising on our nation's radio and television stations has been prohibited for more than the past three decades by federal law
What is curious about this law is that it came into being not just because of the lobbying efforts of American Medical Association but also by the tobacco industry. Use economic logic to explain this apparent paradox.
The tobacco industry has been dominated by a handful of firms for many decades and advertised heavily prior to the passage of this law. To survive, each firm responds in kind. If one firm drops out of the race, it will certainly lose out. Advertising of this sort may not increase demand for the product or improve profitability for the industry. Instead, it is often a "zero sum game"—a game in which the sum of the gains equals the sum of the losses. Tobacco company executives likely realized this "zero sum game" character of their advertising efforts and rightly understood that the only way to increase industry-wide profits would be if everyone were prevented from advertising. This could only be achieved through law.
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The problem caused when people are often reluctant to voluntarily pay for goods and services that provide benefits for everyone, even for those who don't pay is called the:
A. drop in the bucket hypothesis. B. rational ignorance problem. C. moral hazard problem. D. free-rider problem.
Which of the following provides the best explanation of why low-income countries generally remain poor?
a. Their institutional arrangements and policies often discourage productive activity and reduce the potential gains from specialization and exchange. b. They are oppressed by developed nations that benefit from the cheap goods available from countries with low wage rates. c. They are poorly endowed with natural resources, which are essential for long-term rapid growth. d. When the average income level is low, workers have little incentive to earn higher incomes.
Which of the following should be kept in mind when policymakers consider efforts to stabilize the economy?
a. The economy responds very quickly to changes in the interest rate and changes in economic conditions are easy to predict. b. The economy responds very quickly to changes in the interest rate and changes in economic conditions are nearly impossible to predict. c. The economy responds to changes in the interest rate with a lag and changes in economic conditions are easy to predict. d. The economy responds to changes in the interest rate with a lag and changes in economic conditions are nearly impossible to predict.
The identity stating that the total amount spent on final output equals the amount received for final output is known as the
A. equation of exchange. B. circular flow identity. C. identity equation. D. fundamental law of economics.