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In evaluating the two

In evaluating the two primary health care reform options, an important factor is the potential of each option to reduce these major risk factors. National health insurance might lead to an improvement in personal lifestyle choices that affect health outcomes. It would be in the best interest of the government to limit total health care spending over the life of each person. Thus, the government might invest heavily in preventive care, including attempts to alter unhealthy lifestyle choices, like smoking. On the other hand, NHI would mean that individuals would be largely shielded from the medical costs resulting from their unhealthy lifestyle choices. Consumer-driven health care might lead to an improvement in personal lifestyle choices that affect health outcomes. It would be in the best interest of each person to limit their total health care spending over their lifetime. Unhealthy choices, like smoking, would lead to higher health care costs to the individual, both in terms of out-of-pocket costs for normal health care expenses and in terms of the premiums paid for catastrophic health insurance. Thus the individual might invest heavily in preventive care, like a stop-smoking program. Appendix: Adverse Selection and the Individual Mandate A very controversial provision of the ACA is the individual mandate; the requirement that most people who do not have employer-provided or government-provided health insurance must purchase health insurance or pay a penalty. The individual mandate was made necessary by another provision of the ACA; the provision that insurance providers may not deny coverage or charge higher premiums based on pre-existing conditions. This provision would lead to an adverse selection problem if most individuals were not required to purchase health insurance. If there were no individual mandate requiring most individuals to purchase health insurance, a person could wait until they developed a health problem before purchasing health insurance. A person could not be denied coverage or charged higher premiums based on this pre-existing condition. Individuals in good health would have no incentive to purchase health insurance, since they could always purchase the health insurance that they need after they develop a health problem. Thus, only those with health problems would purchase health insurance. This adverse selection of purchasers would mean that health insurance premiums would have to be very high. By requiring that most people purchase health insurance, the individual mandate is intended to assure that a normal selection of healthy people as well as unhealthy people will purchase health insurance. The inclusion of healthy people will keep insurance premiums lower than they would be if only unhealthy people were purchasing health insurance. Research by Hackmann, Kolstad, and Kowalski indicated that the individual mandate included in the Massachusetts health care reform law of 2006 successfully reduced adverse selection. Appendix: Future Growth in Health Insurance Exchanges The health insurance exchanges were intended to supplement not replace employer-provided health insurance. It was anticipated that some employers would drop health insurance, but that the large majority would not. If the percentage of employers who drop health insurance is much higher than expected, the cost to provide the refundable tax credits to those purchasing health insurance through the exchanges will also be much higher than expected. Research by Douglas Holtz-Eakin and Cameron Smith indicates that for workers with income below 250% of the poverty level, it would make sense for their employers to drop health insurance, increase the employee’s pay enough to replace the value of the lost health insurance benefit, and have the employee purchase insurance through a health insurance exchange. The refundable tax credits are generous enough that both the employer and employee can benefit by taking advantage of the government subsidy. The research indicates that around 40 million workers (along with their employers) would be better off financially by dropping employerprovided health insurance and taking advantage of the refundable tax credits available through the health insurance exchanges. If this happens, the cost of the refundable tax credits will be far greater than the $460 billion anticipated for the years 2014-2019, and for years that follow. FOR REVIEW ONLY - NOT FOR DISTRIBUTION Agriculture and Health Care 30 - 12

Study Guide for Chapter 30 Chapter Summary for Chapter 30 For most of history, the majority of resources have been devoted to food production. In developed countries, food production has required a shrinking percentage of available resources. Agricultural markets are among the most competitive U.S. markets. Agricultural productivity and efficiency have been improving. The long run problem for farmers is that farm prices and total revenue have generally been falling due to; (1) increasing productivity in agriculture, (2) income inelastic demand for farm products, and (3) price inelastic demand for farm products. Less efficient farmers are unable to survive in the market as the price decreases. In the short run, unpredictable supply combined with inelastic demand leads to unstable prices and total revenue. To maintain prices above free market equilibrium, the federal government has relied mainly on two traditional farm policies; (1) price supports, which establish a price floor, and (2) target prices, with the government paying farmers a deficiency payment if the market price is less than the target price. The FAIR Act of 1996 was an attempt to gradually eliminate most government subsidies to farmers. The Act was intended to provide a transition period for farmers to move from government-subsidized farming to free market farming. Government subsidies to farmers were scheduled to end after 2002. The Farm Acts of 2002, 2008, and 2014 continued the federal government’s major role in agricultural markets. The federal government’s farm policies are economically inefficient, misallocating resources. Two good things about the federal government’s farm policies are that they are not as bad as the farm policies of many other countries and that they don’t work. Overall health care spending has been rising. The primary source of increased health care spending has been “expanded capabilities of medicine brought about by technological advances”. Other factors that have contributed to the increase in health care spending include; (1) increasing third-party payment of health care expenses, (2) increasing prices in the health care sector, (3) increasing real personal income, and (4) increasing percentage of the population that is 65 years or older and/or overweight. Unless there are significant policy changes, health care spending in the U.S. is likely to continue to increase rapidly in the next couple of decades. 42 million people in the U.S. (13.4% of the nation’s population) did not have health insurance at any time in 2013. The uninsured tend to be without jobs or employed in jobs where health insurance is not provided. Non-citizens are more likely to be uninsured than citizens. Some of the uninsured have incomes low enough to qualify for Medicaid, but have not enrolled in Medicaid. Some of the uninsured have income high enough that they could afford some type of health insurance policy, but choose to forego coverage. The basic goal for health care should be to produce the economically efficient quantity of health care. Achieving this goal is difficult because; (1) health care consumers usually do not pay the full cost for health care services, (2) employer-provided health insurance receives preferential tax treatment, (3) consumers who do pay the full cost of health care services (the uninsured) are often charged an inflated amount, (4) health care consumers lack information, (5) health care providers lack information, and (6) health care providers often have an incentive to overproduce health care services. Supporters of national health insurance assert that NHI would deal with the two primary health care concerns more successfully because; (1) NHI would provide universal health insurance, and (2) NHI would enable better control over total health care spending. Supporters of consumerdriven health care (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 FOR REVIEW ONLY - NOT FOR DISTRIBUTION 30 - 13 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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    Chapter 27 Market Failure The basic

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    External Benefit If a market genera

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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 and 490: Example 12: From 1960 to 2013, the
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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
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  • Page 521 and 522: Fiat money - money by government de
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  • 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-
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