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People are not likely to

People are not likely to be perfectly satisfied with the choices available to them as voters. Will people be well informed about the candidates and issues when they have an opportunity to vote? For that matter, will most people even choose to vote? Low Voter Turnout One of the characteristics of elections in the U.S. is low voter turnout. Even for a highly publicized presidential election, typically only a little more than one-half of the voting-age population actually votes. In a less publicized election, like a local school board election or a bond issue vote, a much smaller percentage is likely to vote. Example 3: The New York City school board election of 1999 had a voter turnout of 2%. Why the low voter turnout? We assume that voters (and non-voters) are primarily motivated by self-interest. Low voter turnout in political elections occurs because many potential voters see the costs of voting as greater than the benefits. The costs of voting are generally fairly small. A person gives up a bit of his or her time, drives to the polling place, waits in line for a few minutes, reads the ballot and then votes. Surely the benefits of voting will outweigh such minor costs. But what are a person’s benefits of voting? The basic purpose of voting is to affect the outcome of the election; to cause the voter’s desired candidate to win. But what is the likelihood of one person’s vote actually deciding the outcome of a major election? Extremely small. Example 4: According to a “Slate” magazine article by economist Steven Landsburg, the odds of any one person casting the deciding vote in a presidential election are much worse than a person’s odds of winning the Powerball jackpot. Quoting Landsburg: “…it's hard to argue that voting is a good use of your time. Instead of waiting in line to vote, you could wait in line to buy a lottery ticket, hoping to win $100 million and use it to advance your causes—and all with an almost indescribably greater chance of success than you'd have in the voting booth.” If the only benefit a person anticipates from voting is the chance to affect the outcome of the election, that person will probably not vote. That person will probably see the costs of voting as greater than the benefits of voting. Many people do vote. The people who do vote are apparently anticipating benefits (e.g. the opportunity to express their opinion, personal satisfaction from participating in the election, etc.) other than the chance to affect the outcome of the election. Rational Ignorance Ignorance means lack of knowledge, being uninformed. All people are ignorant about many things. (Can you name the moons of Jupiter? Neither can I.) People rationally choose to remain ignorant about most subjects. It is rational to remain ignorant if the cost of gaining the information is greater than the benefit of having the information. Consumers are motivated to gather information before making a purchase. Consumers will not have perfect information. Perfect information is too costly. But a consumer making a major purchase (e.g. house, car, college education) may become quite well-informed before making that purchase. Will voters be as well-informed before casting a vote in a political election? What is the benefit of being well-informed about political issues? Does the well-informed person’s vote count more than the ill-informed person’s vote? No. The well-informed person’s vote is highly unlikely to affect the outcome of the election. Thus, most voters will not be well-informed about political issues because they will rationally choose to remain ignorant. FOR REVIEW ONLY - NOT FOR DISTRIBUTION In his book, “The Myth of the Rational Voter: Why Democracies Choose Bad Policies”, economist Bryan Caplan asserts that voters are not just rationally ignorant, but are systematically biased in favor of mistaken views. This book is reviewed in an appendix at the end of the chapter. Low voter turnout and rational voter ignorance may result in government failure. Public Choice and Government Failure 28 - 2

Candidates and the Median Voter Model A wide range of persons choose to become candidates for public office. But these candidates seem to behave in similar patterns. Why do candidates who are often very different in political opinions, backgrounds, personalities, etc. seem to behave so much alike? The median voter model provides an explanation. The median voter model suggests that the median voter (the one in the middle) must be captured to achieve a majority vote. If two candidates are on opposite sides of an issue, or on the same side, the candidate closer to the median position will capture the median voter and the majority of the votes. Example 5: If Candidate Waffle realizes that Candidate Waver is positioned closer to the median voter, Candidate Waffle will want to move closer to the median position. If Candidate Waver realizes that Candidate Waffle is now positioned closer to the median voter, Candidate Waver will want to move closer to the median position. The median voter model predicts that a candidate will behave in certain predictable ways in his or her pursuit of the median voter: 1. Aim for a middle-of-the-road position. A candidate who is too far from the middle-of-theroad will lose the median voter to his or her opponent. A candidate may stake out a fairly extreme position during the nomination process, in order to appeal to the most committed members of the candidate’s party. But after receiving the nomination, the candidate will want to move toward the median position. 2. Label his or her opponents as extremists. At the same time that Candidate Waffle tries to move toward the middle, Candidate Waffle will try to portray Candidate Waver as on the fringe, and out of touch with the desires of the average voter. 3. Adjust his or her positions in response to polls. Candidates will take polls to try to determine what the median voter wants. Candidates may have to change their positions on issues in order to get more in tune with the median voter. 4. Speak in general rather than specific terms. To appeal to the median voter, candidates will speak in general terms in favor of goals that the median voter will support (e.g. a strong economy, efficient government, better education, crime reduction, etc.). Candidates will try to avoid revealing specific details about how they might plan to accomplish these popular goals (e.g. free trade agreements, closure of redundant military bases, tuition vouchers, construction of new prisons, etc.), to avoid offending voters who might disagree with the specifics. Policies favored by the median voter (who likely will be ill-informed on most issues) will not necessarily be the most economically efficient policies. The candidates’ pursuit of the median voter may result in government failure. Elected Officials Once a candidate is elected to public office, what will he or she do? An elected official may have a strong desire to support policies that will benefit the general public by increasing economic efficiency or by promoting long term economic growth. But will an elected official actually support such policies? Elected Officials and Short Run Focus Elected officials tend to have a strong desire to remain elected officials. Thus, an elected official will tend to focus on winning the next election. An elected official will naturally support policies that improve his or her chances of winning the next election, and will naturally oppose policies that harm his or her chances of winning the next election. Thus, an elected official will tend to support policies that yield benefits in the short run (before the next election) and impose costs in the long run (after the next election). This will be true even if the long run costs of the policies exceed the short run benefits. Likewise, an elected official will tend to oppose policies that impose costs in the short run and yield benefits in the long run. This will be true even if the long run benefits of the policies exceed the short run costs. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 28 - 3 Public Choice and Government Failure

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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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    ___ 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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  • Page 479 and 480: ___ 10. The public interest theory
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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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