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Holt 7525-9 S15_IT

3. Four possible

3. Four possible explanations for the paradoxical relationship between the objective progress and the average person’s generally negative perception are: (1) An active preference for bad news. (2) The inability of money to buy happiness. (3) Abundance denial. (4) Collapse anxiety. 4. The five largest national economies in 2013 were: (1) United States (2) China (3) India (4) Japan (5) Germany Answers and explanations for True/False Test Questions: 1. False. The basic economic problem is scarcity. Human wants are unlimited and resources are limited. The government could print a virtually unlimited supply of money, but this would not allow everyone to buy everything that they want. Scarcity is discussed in more detail in Chapter 1. 2. False. When two parties voluntarily enter into a trade, they both expect to benefit from the trade. The benefits of trade are discussed in more detail in Chapter 2. 3. False. A nation’s goal for unemployment will be to achieve full employment. But full employment does not mean an unemployment rate of zero, as will be discussed in Chapter 4. 4. False. A technological advance which destroys jobs is beneficial to a nation’s economy because it makes economic growth possible. This is discussed in more detail in Chapter 4. 5. False. Though it seems logical that an increase in production would also lead to an increase in pollution, air and water quality have been improving in developed nations. The most severe pollution problems occur in less developed countries. This is discussed in Chapter 14. 6. False. International trade is a type of technological advance and contributes to a nation’s economic growth. Restricting imports misallocates limited resources and restricts a nation’s economic growth, as discussed in Chapter 16. 7. False. In a competitive market, the goal of profit-maximization will compel a business firm to act in ways that serve the best interest of society. This is discussed in Chapter 19. 8. False. The economically efficient level of pollution is usually not zero. Since pollution is a byproduct of production, to achieve zero pollution would usually require completely eliminating valuable production. The cost of reducing pollution to zero is usually greater than the benefit of achieving zero pollution. This is discussed in Chapter 27. 9. False. Low voter turnout occurs because many potential voters see the costs of voting as greater than the benefits. The likelihood of one person’s vote actually deciding the outcome of a major election is extremely small. This is discussed in Chapter 28. 10. False. While some income redistribution programs target the low income, the largest income redistribution programs transfer income largely to households above the poverty line. This is discussed in Chapter 31. FOR REVIEW ONLY - NOT FOR DISTRIBUTION A Brief History of U.S. Economic Growth Intro - 10

Chapter 1 Scarcity and Choices The Basic Economic Problem What is the basic economic problem? Various problems may come to mind: poverty, unemployment, inflation, recession, budget deficits, etc. There are many economic problems. But… The basic economic problem is scarcity. Imagine that you are stranded all alone on an island. Maybe you landed on the island after being shipwrecked, like Robinson Crusoe or Gilligan. Or maybe your plane crashed into the ocean, like Tom Hanks in “Castaway”. But there you are. On an island. All alone. Just you and your economic wants. What do you want? Well, you want water, food, shelter, and a way back to civilization. If you are unable to make your way back to civilization, you will soon want new clothing, medical care, recreation, etc. To meet these wants, you must produce goods and services. So you use the resources available to produce goods and services in order to satisfy your wants as well as possible. But how well will you be able to satisfy your wants? Would you expect to eventually achieve a standard of living that is totally satisfying, where there is nothing else that you want? Probably not. Even if you achieved a relatively high standard of living, you would prefer it to be higher. Even if your island were flowing with coconut milk and honey, you would still long for chocolate. By your human nature, you will tend to always want more. This is one side of the problem of scarcity… Human wants are unlimited. Example 1: Imagine that a person could be transported through time from the America of two hundred years ago to the America of today. This time traveler would be amazed at our high standard of living. They would see the average American consuming food, shelter, clothing, transportation, medical care, recreation, etc. in quantities and qualities that would seem incredible to them. They might assume that most modern Americans are perfectly satisfied with their standard of living, desiring nothing more. But that is not the case. We all want more. And even the time traveler would quickly grow accustomed to the relative abundance of modern America. Soon they would notice things that they wanted and did not have – a bigger house, a nicer car, a faster computer, membership in a country club, fashionable new eyeglasses, an iPad, etc. The list of human wants is unlimited. Back on the island, how will you go about trying to satisfy your unlimited wants? You will produce, using the resources available to you. On the island, your resources are very limited. You have only your own labor, the land and other natural resources of the island, and whatever capital goods you are able to produce yourself. And since you are forced to be self-sufficient, specialized resources that might be very valuable in a developed economy (e.g. your computer programming skills) may be of little value on the island. Forced to practice self-sufficiency, your standard of living is likely to be very low. You may be unable to produce enough output even to stay alive. If only you could get back to civilization, where resources are so much more abundant. Then you could have everything that you want! Or could you? No. Even in the most productive societies, it is not possible to produce all of everything that everyone wants. Even where resources are abundant, they are limited. This is the other side of the problem of scarcity… Resources are limited. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 1 - 1 Scarcity and Choices

  • Page 1 and 2: PRINCIPLES OF ECONOMICS JEFF HOLT S
  • Page 3 and 4: Principles of Economics, 6th Editio
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    $8 - 7 - 6 - 5 - Price 4 - 3 - 2 -

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    Chapter 4 Inflation and Unemploymen

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    Computing the Rate of Inflation The

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    Full Employment Though unemployment

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    3. Cyclical unemployment - due to d

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    During the Great Depression, the ec

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    Appendix: Think Like an Economist -

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    Answer questions 8. and 9. based on

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    ___ 25. The extension of unemployme

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    Chapter 5 Measuring Total Output: G

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    5. Leisure. Leisure time is by defi

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    The U.S. is a high per capita GDP c

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    Example 17: In “An International

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    The simple circular flow diagram be

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    ___ 3. Which of the following would

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    2. Explain what nonproduction trans

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    Chapter 6 The Aggregate Market The

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    Example 2C: Assume the same facts a

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    Example 5B: The price of crude oil

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    Price Level Real GDP SRAS AD 2 AD 1

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    Appendix: Why the Aggregate Demand

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    ___ 3. DEF Company can invest in ne

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    2. List and explain the two factors

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    Chapter 7 Classical Economic Theory

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    Notice that the investment demand c

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    Long-Run Equilibrium If Real GDP is

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    Example 6B: When the economy is in

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    Laissez-faire If the economy is sel

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    ___ 5. According to Say’s Law: a.

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    3. On the graph below, draw an aggr

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    Chapter 8 Keynesian Economic Theory

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    Example 2B: The graph below illustr

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    Example 5: Assume that the table be

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    Notice on the graph on the previous

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    According to Keynesian theory, a ch

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    “The General Theory” also inclu

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    ___ 8. If the consumption function

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    3. If the MPC is .667, and investme

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    Chapter 9 Fiscal Policy The basic e

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    Keynesian Fiscal Policy Theory and

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    Example 5A: The federal government

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    The Laffer Curve What will happen t

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    Appendix: The Importance of Incenti

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    ___ 4. A decrease in government exp

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    2. Explain what automatic stabilize

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    Chapter 10 Money, Money Creation, a

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    Example 4B: The castaways on Gillig

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    Looking at the balance sheet below,

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    Demand-side One-shot Inflation Exam

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    4. Inflation increases uncertainty

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    life; it came into existence not by

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    calculated by using the potential d

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    ___ 12. If the required-reserve rat

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    4. Referring to the balance sheet f

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    Chapter 11 The Federal Reserve Syst

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    5. After Bank X sells the $300,000

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    Low Mortgage Interest Rates Mortgag

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    Relaxed Standards for Mortgage Loan

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    The Bursting of the Housing Bubble

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    On February 17, 2009, the federal g

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    Fed policies caused short-term inte

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    ___ 10. The Fed’s most important

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    ___ 25. In response to the recessio

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    Chapter 12 Monetary Policy The basi

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    2. A change in aggregate demand (AD

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    Monetarist Transmission Mechanism C

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    3. Borrowers do not have to seek ou

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    Appendix: Book Review - “The Age

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    Questions for Chapter 12 Fill-in-th

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    ___ 16. The primary source of incom

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    7. According to Alan Greenspan, wha

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    Chapter 13 Taxes, Deficits, and the

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    Example 5: In 2015, Taxpayer A had

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    of $5 and a quantity of 10 units. T

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    The complexity of the tax law also

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    the current government spending and

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    cut of 1964. The top rate was lower

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    ___ 6. Federal excise taxes: a. are

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    3. How would eliminating the loopho

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    Chapter 14 Economic Growth The basi

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    2. Labor. Labor can contribute to e

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    estricting international trade (e.g

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    An improvement in technology (e.g.

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    The table below shows the economic

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    will increase both Real GDP and per

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    ___ 8. Which of the following is co

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    ___ 26. The opinion that economic g

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    Chapter 15 Less Developed Countries

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    Example 8: Countries A, B, C, and D

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    Obstacles to Economic Development f

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    c. Restrictions on international tr

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    Appendix: Book Review - “The Powe

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    Example 25: In Brazil, about half t

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    Study Guide for Chapter 15 Chapter

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    ___ 13. Among the counterproductive

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    4. List four ways that governments

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    Chapter 16 International Trade The

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    Other Benefits of Free Internationa

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    Example 6: The graph below illustra

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    competitive disadvantage. But dumpi

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    is only 25% as productive as before

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    Smith was skeptical of government a

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    ___ 4. For Country X, what is the o

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    ___ 18. Frédéric Bastiat’s “P

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    4. On the graph below: (1) What is

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    Chapter 17 Elasticity We are often

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    Example 4A: What is price elasticit

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    Example 5A: Gertie’s Gas and Go i

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    Example 10A: When the price of Good

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    Example 13B: On the graph below, su

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    $7 - 6 - 5 - Price 4 - 3 - 2 - 1 -

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    In the long run, would the deadweig

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    ___ 7. The factors that determine w

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    3. a. Which price (or prices) from

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    Chapter 18 Utility The basic econom

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    Nonetheless, society generally assu

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    Example 9: Capital City operates a

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    Marginal rate of substitution - the

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    The diamond-water paradox is the ob

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    Complete the table below to answer

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    4. The graph below shows indifferen

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    Chapter 19 The Firm The basic econo

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    than contributing to team productio

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    1. Difficulty in raising large amou

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    Corporations also use self-financin

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    Example 24: A blacksmith who produc

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    For financing needs, proprietorship

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    ___ 13. Corporations: a. are comple

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    5. List two things that the absence

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    Chapter 20 Production and Costs The

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    In Example 5B, Birdwell finds that

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    variable cost initially decreases,

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    Quantity TC MC AFC AVC ATC 0 240 X

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    If the scale of operation is increa

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    average total cost. Average fixed c

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    ___ 11. Concerning the cost curves:

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    5. Complete the following cost tabl

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    Chapter 21 Perfect Competition The

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    Even though a perfect competitor ca

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    Example 6C: This example builds on

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    At what price will there be neither

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    Appendix: Perfect Competition in th

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    Multiple Choice: ___ 1. A perfect c

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    ___ 17. Perfect competition: a. req

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    Answers for Chapter 21 Fill-in-the-

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    Chapter 22 Monopoly Of the four mar

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    3. Exclusive ownership of an essent

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    maximizing quantity (4 units) creat

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    $22 - 20 - 18 - 16 - 14 - Deadweigh

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    2. Negotiating, beginning at a high

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    Legal barriers are created by gover

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    ___ 8. The slope of the demand curv

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    Price Quantity 3. List some of the

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    Chapter 23 Monopolistic Competition

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    For Percomp (the perfect competitor

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    Example 7A: The graph below represe

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    Example 9: The Organization of the

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    Example 12 illustrates the dilemma

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    its current price and quantity. The

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    ___ 14. Game theory: a. is a method

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    Answers for Chapter 23 Fill-in-the-

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    Chapter 24 Factor Markets The basic

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    $ $240 - 200 - 160 - 120 - 80 - 40

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    Since producers will attempt to equ

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    2. Differences in nonmoney aspects

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    were his strikeouts, walks, and hom

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    ___ 3. To maximize profits, a produ

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    ___ 19. According to the book, “M

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    Multiple Choice: 1. a. 8. c. 15. d.

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    Chapter 25 Labor Unions The primary

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    The elasticity of demand for union

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    Example 4A: Assume that the graph b

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    Notice from the graph in Example 6

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    Wage Factory A Quantity of Labor S

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    As a cartel, a labor union faces a

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    ___ 10. For a monopsony: a. there i

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    3. The graph below represents a lab

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    Chapter 26 Interest, Present Value,

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    An increase in expected rates of re

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    An asset is valuable because we exp

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    Example 13B: General Ordnance prove

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    Appendix: Present Value Table One f

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    ___ 4. An increase in expected rate

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    Problems: 1. List and explain the t

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    Chapter 27 Market Failure The basic

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    External Benefit If a market genera

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    Example 2: To encourage the consump

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    $100 - 90 - 80 - MSC 70 - $ 60 - 50

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    A common good is nonexcludable. Non

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    Study Guide for Chapter 27 Chapter

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    ___ 5. What government policy would

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    4. Based on the information on the

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    Chapter 28 Public Choice and Govern

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    Candidates and the Median Voter Mod

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    Example 8: According to State and F

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    Example 10: When Elvis Presley was

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    4. Pessimistic bias. This is the te

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    ___ 5. An elected official will: a.

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    2. If a certain policy will yield s

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    Chapter 29 Government Regulation of

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    underproduction is the amount that

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    micromanagement results in business

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    market. They may agree with their c

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    Questions for Chapter 29 Fill-in-th

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    ___ 10. The public interest theory

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    4. List the four types of costs imp

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    Chapter 30 Agriculture and Health C

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    weather may cause bumper crops. Bad

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    Security and Rural Investment Act o

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    Example 12: From 1960 to 2013, the

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    1. NHI would provide universal heal

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    d. Insurance providers are not allo

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    Study Guide for Chapter 30 Chapter

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    Answer questions 7. through 10. by

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    ___ 21. If there were no individual

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    Chapter 31 Income Distribution and

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    Income is more equally distributed

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    over a typical career is the accumu

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    Ideal Income Redistribution The ide

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    Poverty - a family whose income fal

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    Appendix: Income Inequality around

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    How is this story an analogy for th

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    ___ 2. In 2013, the Lowest Income 6

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    Problems: 1. Explain the two primar

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    Absolute advantage - when one natio

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    Fiat money - money by government de

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    Nonrivalrous good - a good for whic

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    Absolute advantage, 16-9 Absolute e

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    “Company town”, 25-6 Comparativ

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    Eli Lilly and Company, 22-1 Emergen

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    Houston, Texas, 15-10 Human capital

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    Market, 3-1, 3-8-9 Market basket, 4

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    Political bias, 9-4, 12-7 Political

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    Short run production, 20-2-3 Short-

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    Upturns, 9-4 USDA, 27-9, 30-1-2, 30

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