In a ________, the amount of output that any one household gets depends on its income and wealth.
A. command system
B. free-market system
C. socialist economy
D. Marxist economy
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?
Suppose our tastes are homothetic. It is often observed that people become more rigid --- more set in their ways --- as they get older. Can you translate this observation into "economics-speak" by discussing which feature of our tastes is likely the be changing as we get older?
What will be an ideal response?
The consumption function is drawn on a graph with disposable income on the horizontal axis without including investment. Assume investment is autonomous and is added to the consumption function. The effect is:
a. an upward adjustment in the vertical intercept b. no change in the adjustment in the vertical intercept. c. an increase in the slope of the consumption schedule. d. a decrease in the slope of the planned expenditure schedule.
A firm with market power will be able to sell all of their output at any price they desire.
Answer the following statement true (T) or false (F)