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Example 4A: According to

Example 4A: According to a report by the World Health Organization, in 2012 over 700 million people did not have access to improved drinking water sources and 2.5 billion did not have access to adequate sanitation. Almost all of these people were in less developed countries. Unsafe drinking water and inadequate sanitation contribute to health problems and to the spread of disease. Example 4B: An outbreak of cholera in Haiti beginning in the fall of 2010 sickened about 700,000 people and resulted in the deaths of about 8,500 in the three years after the outbreak. Cholera is a diarrheal disease which can spread quickly in areas with inadequate treatment of sewage and drinking water. 4. Inadequate medical services. Training medical doctors is extremely expensive. As a result, LDCs tend to have far fewer doctors relative to population than developed countries. Example 5: The ratio of doctors to population in the U.S. is about 1 doctor for every 400 persons. In Somalia, a less developed country, the ratio is about 1 doctor for every 25,000 persons. In LDCs, many people have limited or no access to medical services. Illnesses and injuries that would be minor in developed countries may prove to be fatal or permanently disabling in LDCs because of the lack of medical treatment. Example 6: According to the World Health Organization, 6.6 million children under the age of 5 died in 2012. More than half of these deaths were due to conditions that could be prevented or treated with access to simple, affordable interventions. The leading causes of death were pneumonia, preterm birth complications, birth asphyxia, diarrhea, and malaria. About 45% of all child deaths are linked to malnutrition. Economic Growth and the Rule of 70 In order to escape the hardships just discussed, less developed countries need to achieve rapid economic growth. The Rule of 70 can be used to calculate how many years it will take a country to double its per capita GDP. The Rule of 70 is a rule of thumb for calculating the approximate time required for any variable to double at a given growth rate. Using the Rule of 70, the time required for a variable to double is calculated by dividing 70 by the percentage annual growth rate. Rule of 70: Time to double = 70 ÷ Annual Growth Rate Example 7A: Country A achieves an annual growth in per capita GDP of 1%. How many years will it take Country A to double its per capita GDP? 70 years (70 ÷ 1) Example 7B: Country B achieves an annual growth in per capita GDP of 2%. How many years will it take Country B to double its per capita GDP? 35 years (70 ÷ 2) Example 7C: Country C achieves an annual growth in per capita GDP of 5%. How many years will it take Country C to double its per capita GDP? 14 years (70 ÷ 5) Example 7D: Country D achieves an annual growth in per capita GDP of 7%. How many years will it take Country D to double its per capita GDP? 10 years (70 ÷ 7) FOR REVIEW ONLY - NOT FOR DISTRIBUTION The Importance of Economic Growth Rates Economic growth rates are very important. The importance of economic growth rates can be seen in Examples 8 and 9 on the next page. Less Developed Countries 15 - 2

Example 8: Countries A, B, C, and D from Examples 7A, 7B, 7C, and 7D on the previous page are assumed to be equal in per capita GDP in 2014. With their different annual growth rates, per capita GDP for each country is very different by 2084. Country A B C D Percapita GDPgrowth rate 1% 2% 5% 7% Percapita GDP (2014) $5,000 $5,000 $5,000 $5,000 Percapita GDP (2024) x x x $10,000 Percapita GDP (2028) x x $10,000 x Percapita GDP (2034) x x x $20,000 Percapita GDP (2042) x x $20,000 x Percapita GDP (2044) x x x $40,000 Percapita GDP (2049) x $10,000 x x Percapita GDP (2054) x x x $80,000 Percapita GDP (2056) x x $40,000 x Percapita GDP (2064) x x x $160,000 Percapita GDP (2070) x x $80,000 x Percapita GDP (2074) x x x $320,000 Percapita GDP (2084) $10,000 $20,000 $160,000 $640,000 Example 9: In 1960, Argentina’s per capita Real GDP was about 1.4 times higher than Singapore’s. From 1960 to 2010, Argentina’s per capita Real GDP grew at 1.44% per year, and Singapore’s per capita Real GDP grew at 5.22% per year. By 2010, Singapore’s per capita Real GDP was about 4.5 times higher than Argentina’s. (Per capita Real GDP numbers from Penn World Tables.) Even a small difference in economic growth rates can make a large difference in standard of living over a long period of time. This is true due to the power of compounding (discussed in Chapter 31). Example 10: In 2000, U.S. per capita GDP was $34,759. A table in an appendix at the end of this chapter indicates what U.S. per capita Real GDP (Base 2000) will be over the course of the 21 st century assuming different annual growth rates in per capita Real GDP. At an annual growth rate of 1%, U.S. per capita Real GDP will increase by 2.7 times over the 21 st century. At an annual growth rate of 2.5%, U.S. per capita Real GDP will increase by over 12 times. Economic Freedom and Economic Growth Most economists believe that economic freedom is important to economic growth. Economic freedom is measured by such factors as strength of private property rights, relative size of government, level of taxation, degree of government regulation of economic activity, international trade policy, etc. Example 11: According to the “Economic Freedom of the World, 2013 Annual Report”, the twenty-five percent of nations with the freest economies experienced an average annual increase in per capita Real GDP of 3.69% from 1991 to 2011, thus on pace to double their standards of living in about 21 years. The twenty-five percent of nations with the least free economies experienced an average annual increase in per capita Real GDP of 1.09% from 1991 to 2011, thus on pace to double their standards of living in about 64 years. Per Capita GDP for Selected Countries FOR REVIEW ONLY - NOT FOR DISTRIBUTION The table on the next page provides information for selected countries, listed in order of per capita GDP. The table includes the 43 most populous countries in the world and the 31 countries with the largest economies in the world. The information is for 2013, and is from the “CIA World Factbook”. 15 - 3 Less Developed Countries

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    PRINCIPLES OF ECONOMICS JEFF HOLT S

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    Principles of Economics, 6th Editio

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    16. Study Guide for Chapter 7 17. C

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    11. Appendix: Book Review - “The

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    20. Appendix: The NCAA Cartel 21. S

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    Introduction: A Brief History of U.

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    In the twentieth century, per capit

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    Appendix: The 35 Largest National E

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    Multiple Choice: ___ 1. The Jamesto

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    2. Describe the economic cost of th

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    Chapter 1 Scarcity and Choices The

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    Example 5B: At the end of 1982, the

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    Example 11: When Cindy quits her jo

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    consequences may result in failure

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    An upward sloping curve (as in Exam

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    In making decisions, humans tend to

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    5. ______________________ _________

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    ___ 13. If the value of one variabl

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    Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7

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    Chapter 2 Trade and Economic System

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    Example 4B: The following quantitie

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    1. An increase in the quantity of r

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    3. For whom to produce? This is det

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    The graph below illustrates the shi

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    The two primary economic systems ar

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    ___ 12. The capitalist vision sees

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    ___ 25. According to the book “Ca

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    Chapter 3 Demand, Supply, and Equil

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    . For inferior goods, income and de

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    The same information can be placed

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    Not only does a free market elimina

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    $7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3

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    Example 17: The graph below illustr

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    Questions for Chapter 3 Fill-in-the

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    ___ 12. Assuming a market originall

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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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    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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