Explain the economic rationale behind military alliances. Do new members always strengthen the alliance? Why or why not? What will be an ideal response? ANSWER The economic rationale behind military alliances is that if defense is a public good, then it is possible that the optimal sharing group for national defense is larger than […]
What could be a potential explanation for a firm selling virtually identical products under different brands? A) Consumers are well informed about the quality of the products. B) Consumers believe that the products’ quality is similar and thus firms are able to price discriminate. C) Consumers always favor private-label brands. D) Consumers believe that the […]
If a Cournot duopolist announced that it will double its output A) it becomes the leader. B) the other firm does not view the announcement as credible. C) the other firm will shut down. D) the other firm will double output also. ANSWER B
Adverse selection occurs when an agreement encourages undesirable behavior. Indicate whether the statement is true or false ANSWER False. This is a moral hazard. Adverse selection occurs if the offer to make an agreement attracts a certain type person who undertakes the undesirable behavior anyway.
A change in a relevant factor other than the price of the good itself causes a ________ the demand curve, and a change in a good’s own price causes a ________ the demand curve. A) shift of; shift of B) shift of; movement along C) movement along; shift of D) movement along; movement along […]
The problems posed by special interests are unaffected by fiscal federalism. a. True b. False ANSWER b
Bob’s utility function is shown in the above figure. He currently has $100 worth of property, but there is a 50% chance that all of it will be stolen. An insurance company offers to reimburse Bob for his loss if the money is stolen. What is the most that Bob would pay for such a […]
If sellers of good cars and sellers of lemons both offer a warranty on their cars, consumers will then be able to tell which cars are the lemons. Indicate whether the statement is true or false ANSWER False. The lemon owners are sending a false signal that consumers cannot detect. There is still nothing […]
If the price of a pizza were to increase to $50, many people would give up eating pizza while others would continue to eat it. This would indicate A) those who are buying pizza value it at least $50 per pizza. B) those who are not buying pizza value it more than $50 per pizza. […]
Why does the double taxation of saving occur? Provide a numerical example of the double taxation of saving under a traditional income tax. What will be an ideal response? ANSWER The double taxation of saving occurs because under our current tax system saving is made out of income that has already been taxed and […]
