Explain the process by which a private subsidy corrects an external benefit
What will be an ideal response?
If a good or service has an external benefit, an unregulated competitive market will produce less than the efficient quantity. A private subsidy, which is money given to firms, reduces the cost of production. With the subsidy, firms are willing to produce more at any given price. If the subsidy equals the marginal external benefit, production with the subsidy will be at the efficient level.
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The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; A B. recessionary; C C. recessionary; B D. expansionary; A
Use the following diagram to answer the next question.
Based on this diagram, we can say ________.
A. crowding out is limiting the effectiveness of expansionary monetary policy B. investment demand will not respond when interest rates change C. there is a liquidity trap D. monetary policy is likely to be pro-cyclical
Using the data in the above table, the labor force participation rate is
A) 60.8 percent. B) 56 percent. C) 4.8 percent. D) 61.6 percent. E) 64.4 percent.
Which of the following is true about price elasticity of supply?
A) Price elasticity of supply = Percentage change in quantity supplied / Absolute change in price B) Price elasticity of supply = Percentage change in quantity supplied / Percentage change in price C) Price elasticity of supply = Percentage change in quantity supplied × Absolute change in price D) Price elasticity of supply = Percentage change in quantity supplied × Percentage change in price