Suppose all individuals in a group have homothetic tastes. Then we can be sure that the group can be treated as a single representative consumer is if the group members also have identical tastes.
Answer the following statement true (T) or false (F)
True
Rationale: When tastes are homothetic, optimal bundles always lie on the same ray from the origin as income changes. If tastes are also the same for all group members, then optimal bundles lie on the same ray from the origin as income changes -- which means that changes in individual behavior will exactly offset each other as income is redistributed within the group.
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Many believe that fairness calls for higher income taxes on the wealthy. Using one of the “Ideas for Beyond the Final Exam,” explain how higher taxes on the wealthy will affect output.
What will be an ideal response?
In a macroeconomic model designed to explain why some countries grow faster than others, which of these variables is likely to be endogenous?
A) investment B) economic policies C) geographic size D) population E) none of the above
When someone is served pizza and soda for dinner, it is typical behavior to eat some pizza, then drink some soda, then eat more pizza, and so on, until the person stops consuming both. How can this behavior be explained using economic concepts?
A. The individual is revealing that he can't decide whether he gains more utility from pizza or from soda. B. People tend to act irrationally around food, and the concept of utility maximization cannot be applied. C. The person eats pizza until his marginal utility for pizza is lower than it is for soda, then he switches to soda. D. The concept of unlimited wants says he will never tire of eating pizza and soda.
The prosperity of a nation today is typically measured by its: a. total output or gross national product
b. real output per capita. c. gold reserves. d. proportionate share of international trade.