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(taxable) wages. If

(taxable) wages. If employer-provided health insurance received the same tax treatment as wages, many employees would probably choose to receive a higher percentage of their compensation in the form of wages and either forgo employer-provided health insurance or opt for a cheaper and less comprehensive (high-deductible) employer-provided health insurance. The preferential tax treatment received by employer-provided health insurance causes most employees to choose a comprehensive health insurance plan. This increases the prevalence of third-party payment of health care costs, increasing the tendency of consumers to overconsume health care. 3. Consumers who do pay the full cost of health care services (the uninsured) are often charged an inflated amount. Because the government and private health insurance companies negotiate with health care providers to pay only a portion of the health care provider’s “normal charge”, health care providers have an incentive to set a very high “normal charge” that the government and private health insurance companies will negotiate down from. The only consumers who are actually charged the “normal charge” are the uninsured. The artificially high normal charge may cause the uninsured to consume less than the optimal amount of health care. Example 15: Family Care Clinic sets a “normal charge” for a well-baby checkup of $120. The actual reimbursement that Family Care receives from the government or from a private health insurance company may be half of this “normal charge”. The high normal charge may cause a parent without health insurance to forgo the checkup, even if they would have been willing to pay the discounted amount that the government or a private health insurance company would pay. 4. Health care consumers lack information; a. Consumers have a difficult time determining the marginal benefit of health care. If a consumer buys a pizza, they know what they are getting. If a consumer agrees to an MRI, they don’t know how much benefit they will receive. b. Consumers often do not know the cost of various health care options. Since consumers are typically paying only a portion of the cost, they are less motivated to investigate the cost of various health care options. Health care providers are not competing for customers on the basis of cost, so they are not forthcoming about the cost of various health care options. c. Consumers often do not know much about the quality of services offered by different health care providers. The rigorous licensing requirements involved in the practice of medicine may give consumers a false sense of security that all health care providers are of uniformly high quality. Research indicates that quality varies among health care providers. 5. Health care providers lack information. Diagnosing illnesses and determining treatments is an inexact science. Health care providers often do not know how much benefit (if any) will result from a particular health care service. Health care providers want to provide successful treatment and health care consumers want to receive successful treatment, and neither is highly motivated to evaluate a particular treatment in terms of the expected benefit and the expected cost. 6. Health care providers often have an incentive to overproduce health care services. Doctors and hospitals are typically reimbursed by private health insurance companies on a fee-forservice basis. Health care providers thus generate more revenue by providing more services, even if the cost of the services is greater than the expected benefits. Options for Health Care Reform There is widespread agreement that the health care system is in need of reform. There is significant disagreement about the best type of reform. The two primary options for major health care reform are national health insurance (NHI) and consumer-driven health care (CDHC). Supporters of national health insurance assert that NHI would deal with the two primary health care concerns more successfully than the current health care system does and more successfully than would a consumer-driven health care system, because: FOR REVIEW ONLY - NOT FOR DISTRIBUTION Agriculture and Health Care 30 - 8

1. NHI would provide universal health insurance. Supporters of NHI see health care as a fundamental right, rather than as a commodity to be rationed based on income. They see the lack of universal health insurance in the U.S. as a moral failure and believe that the U.S. should join other developed nations in providing universal health insurance. 2. NHI would enable better control over total health care spending by; a. lowering the cost of administration. The current health care system, with its variety of governmental health insurance programs and private health insurance programs, results in enormous administrative cost. A single-payer national health insurance could have much lower costs of administration. b. controlling inflation in the health care sector. The government could use its monopsony power as the single payer to negotiate lower prices for hospital care, physician services, prescription medicines, etc. c. setting overall limits on the amount of health care spending. Just as other types of government spending (e.g. national defense, public education) are limited to budgeted amounts, an overall limit on the amount of health care spending could be set. This would require difficult decision-making to determine the best use of the limited resources. Preventive medical care would be emphasized, since it would be in the best interest of the government to limit total health care spending over the life of each person. Those who oppose national health insurance assert that: 1. Health care cannot be considered a fundamental right. Given the basic economic problem of scarcity, health care must be rationed in some way, either on the basis of interactions in the marketplace or by governmental decision-making. The marketplace will do a better job of measuring marginal benefits and marginal costs than will a government bureau. 2. Competitive markets are the best way to control total health care spending because; a. administrative costs could best be lowered by a CDHC system, with most medical payments made directly by the consumer rather than by a third-party. b. competitive markets are the best way to set prices. The spiraling costs of health care are largely the result of the lack of competition and the prevalence of third-party payments. In parts of the health care market where competition is strong and third-party payments are uncommon (e.g. cosmetic surgery, LASIK eye surgery), real prices have been falling even as consumer demand has increased. Setting prices by competitive markets avoids the surpluses and shortages that are inevitable with governmental price controls. c. setting overall limits on the amount of health care spending will lead to shortages and misallocation of resources. As real income, the average age of the population, and the quantity of health care available all increase in the future, the total amount of health care spending almost certainly should increase. But only the market can determine the efficient amount of health care spending, based on marginal benefits and marginal costs. Supporters of CDHC assert that competitive markets are the most efficient way to allocate limited health care resources. In a CDHC system, most consumers would choose to purchase highdeductible health insurance to cover only catastrophic health care costs. Buying insurance is not an efficient way to pay for rent, utilities, car maintenance, or normal health care expenses. Since catastrophic health insurance would have a high deductible, the cost would be manageable for most people. The government could subsidize the purchase of catastrophic health insurance by persons with low income or with major health problems. Normal health care expenses could be paid by the consumer. The direct payment for health care by the consumer would have a number of advantages over the current health care system or over national health insurance: 1. Since the consumer would be paying the full cost for health care, consumers would be much more cost-conscious than in either the current system or in a national health insurance system. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 30 - 9 Agriculture and Health Care

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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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    ___ 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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  • Page 451 and 452: ___ 5. What government policy would
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  • Page 457 and 458: Candidates and the Median Voter Mod
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  • Page 471 and 472: underproduction is the amount that
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  • Page 475 and 476: market. They may agree with their c
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  • Page 479 and 480: ___ 10. The public interest theory
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  • Page 485 and 486: weather may cause bumper crops. Bad
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  • Page 489: Example 12: From 1960 to 2013, the
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  • Page 497 and 498: Answer questions 7. through 10. by
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  • Page 501 and 502: Chapter 31 Income Distribution and
  • Page 503 and 504: Income is more equally distributed
  • Page 505 and 506: over a typical career is the accumu
  • Page 507 and 508: Ideal Income Redistribution The ide
  • Page 509 and 510: Poverty - a family whose income fal
  • Page 511 and 512: Appendix: Income Inequality around
  • Page 513 and 514: How is this story an analogy for th
  • Page 515 and 516: ___ 2. In 2013, the Lowest Income 6
  • Page 517 and 518: Problems: 1. Explain the two primar
  • Page 519 and 520: Absolute advantage - when one natio
  • Page 521 and 522: Fiat money - money by government de
  • Page 523 and 524: Nonrivalrous good - a good for whic
  • Page 525 and 526: Absolute advantage, 16-9 Absolute e
  • Page 527 and 528: “Company town”, 25-6 Comparativ
  • Page 529 and 530: Eli Lilly and Company, 22-1 Emergen
  • Page 531 and 532: Houston, Texas, 15-10 Human capital
  • Page 533 and 534: Market, 3-1, 3-8-9 Market basket, 4
  • Page 535 and 536: Political bias, 9-4, 12-7 Political
  • Page 537 and 538: Short run production, 20-2-3 Short-
  • Page 539 and 540: Upturns, 9-4 USDA, 27-9, 30-1-2, 30
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