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The table below shows the economic growth rates (as measured by the change in per capita Real GDP from 1990 to 2010) for the 10 largest oil exporting countries of 2010. The table indicates that the ten largest oil exporting countries had an average increase of about 44% in per capita Real GDP over this time period. Conversely, the ten largest oil importing countries in 2010 (U.S., China, Japan, India, South Korea, Germany, Italy, France, Singapore, and Spain) had increases in per capita Real GDP over this time period that averaged 78%. (Information is from the Penn World Tables and International Petroleum Monthly.) Ten Largest Oil Exporting Countries in 2010 Country Change in percapita RealGDP 1990-2010 Saudi Arabia 30% Russia 20% Iran 62% Nigeria 45% United Arab Emirates -6% Angola 170% Iraq 27% Venezuela 12% Norway 55% Mexico 27% Appendix: Future Economic Growth – Doom or Boom? As discussed earlier in this chapter, most countries in the world have been achieving both absolute economic growth and per capita economic growth recently. But will this trend continue? Can economic growth be sustained in the future? One viewpoint is that economic growth cannot be sustained in the future. This opinion is typically based on a number of related ideas: 1. The world’s population is growing faster than its capacity to produce food. This viewpoint can be traced back to Thomas Robert Malthus and his “Essay on Population”, discussed earlier in this chapter. The Malthusian predictions have not come to pass. Nonetheless, there is still strong support for the belief that they will eventually come to pass. In 1968, Paul R. Ehrlich published, “The Population Bomb”. This book argued that population growth was outstripping the world’s capacity to produce food. Ehrlich wrote, “The battle to feed all of humanity is over…In the 1970s and 1980s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now.” This prediction obviously did not come true. In fact, the number of deaths from famine in the last decades of the 20 th century was much smaller than the number of deaths from famine in the last decades of the 19 th century. In later writings, Ehrlich predicted rising food prices and a falling life expectancy. In reality, real food prices have generally been falling and life expectancies have generally been rising, particularly in developing countries. Example 10: In developing countries, wheat production per acre increased by over 5-fold between 1950 and 2000. Life expectancy in developing countries has increased by more than 20 years since 1950. 2. Economic growth combined with population growth will hasten the depletion of nonrenewable resources. This viewpoint assumes that the more rapidly economic output increases, the more rapidly nonrenewable resources (e.g. fossil fuels, metals, minerals, etc.) will be depleted. It seems logical that increased economic output would increase depletion of nonrenewable resources. But it hasn’t happened yet. As economic output has increased, the real prices of nonrenewable resources have generally been falling and the known reserves have generally been rising. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 14 - 9 Economic Growth

Example 11: “The Economist” magazine has been publishing an industrial commodity-price index since 1864, with measurements beginning in 1845. According to the index, real commodity prices were only about 50% as high in 2014 as they were in 1845-50. 3. Economic growth combined with population growth will hasten environmental degradation. This viewpoint assumes that the more rapidly economic output increases, the more environmental degradation will occur. It seems logical that increased production would also lead to an increase in undesirable byproducts of production (pollution). However, the quality of both air and water in developed countries has been improving. The most severe pollution problems occur in less developed countries, where millions of people do not have access to safe drinking water or proper sanitation. An alternative to the doomster viewpoint is the boomster viewpoint that economic growth can be sustained in the future. The boomster viewpoint disputes the ideas of the doomsters: 1. A growing population is not a hindrance to economic growth. According to Julian Simon’s 1981 book “The Ultimate Resource”, human beings, with their intelligence and imagination, are the ultimate resource. As the population grows, the stock of human intelligence and imagination grows. 2. Depletion of nonrenewable resources is not a hindrance to future economic growth. As economic growth has occurred in the past, the prices of nonrenewable resources have generally fallen. If the price of a nonrenewable resource increases, this provides incentives for the discovery of additional sources of the resource or for alternative sources of the service provided by the resource. Example 12: Kerosene replaced whale oil for lighting in the 19 th century. Fiber optics began replacing copper wiring for communications in the late 1970s. 3. Economic growth leads to environmental improvement rather than degradation. There is a strong correlation between a nation’s standard of living and its environmental quality. Highincome countries can afford better environmental quality than low-income countries. The most dangerous environmental problems (e.g. air-borne and water-borne diseases) are much more common in low-income countries than in high-income countries. Example 13: The environmental problems in London were much worse in the 1800s than today. Poor sanitation in London contributed to cholera epidemics in 1832 and 1849, in which thousands died. Many sewers were little more than open ditches. The combination of open sewers and streets crowded with horses caused a prevailing stench. The odor was so bad in 1858 that the House of Commons considered relocating. 1858 became known as the year of The Great Stink. Study Guide for Chapter 14 Chapter Summary for Chapter 14 In the long run, a nation’s success in dealing with the basic economic problem of scarcity depends on its success in achieving economic growth. Absolute economic growth is an increase in Real GDP. Per capita economic growth is an increase in per capita Real GDP. Most countries in the world have achieved both absolute and per capita economic growth in recent decades. The six most populous countries achieved per capita economic growth between 1970 and 2010. The economic growth has led to decreasing world poverty. The U.S. achieved per capita economic growth in every decade over the period from 1930 to 2010. FOR REVIEW ONLY - NOT FOR DISTRIBUTION The factors that determine a country’s ability to increase its productive capacity are the determinants of economic growth. Having abundant natural resources is probably helpful to achieving economic growth. Labor can contribute to economic growth in two ways; (1) an increase in the quantity of labor will increase Real GDP, and (2) an increase in labor productivity Economic Growth 14 - 10

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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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    Example 10A: When the price of Good

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    Example 13B: On the graph below, su

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

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    In the long run, would the deadweig

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    ___ 7. The factors that determine w

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    3. a. Which price (or prices) from

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    Chapter 18 Utility The basic econom

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    Nonetheless, society generally assu

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    Example 9: Capital City operates a

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    Marginal rate of substitution - the

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    The diamond-water paradox is the ob

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    Complete the table below to answer

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    4. The graph below shows indifferen

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    Chapter 19 The Firm The basic econo

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    than contributing to team productio

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    1. Difficulty in raising large amou

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    Corporations also use self-financin

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    Example 24: A blacksmith who produc

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    For financing needs, proprietorship

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    ___ 13. Corporations: a. are comple

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    5. List two things that the absence

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    Chapter 20 Production and Costs The

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    In Example 5B, Birdwell finds that

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    variable cost initially decreases,

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    Quantity TC MC AFC AVC ATC 0 240 X

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    If the scale of operation is increa

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    average total cost. Average fixed c

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    ___ 11. Concerning the cost curves:

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    5. Complete the following cost tabl

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    Chapter 21 Perfect Competition The

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    Even though a perfect competitor ca

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    Example 6C: This example builds on

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    At what price will there be neither

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    Appendix: Perfect Competition in th

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    Multiple Choice: ___ 1. A perfect c

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    ___ 17. Perfect competition: a. req

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    Answers for Chapter 21 Fill-in-the-

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    Chapter 22 Monopoly Of the four mar

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    3. Exclusive ownership of an essent

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    maximizing quantity (4 units) creat

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

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    2. Negotiating, beginning at a high

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    Legal barriers are created by gover

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    ___ 8. The slope of the demand curv

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    Price Quantity 3. List some of the

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    Chapter 23 Monopolistic Competition

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    For Percomp (the perfect competitor

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    Example 7A: The graph below represe

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    Example 9: The Organization of the

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    Example 12 illustrates the dilemma

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    its current price and quantity. The

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    ___ 14. Game theory: a. is a method

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    Answers for Chapter 23 Fill-in-the-

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    Chapter 24 Factor Markets The basic

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

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    Since producers will attempt to equ

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    2. Differences in nonmoney aspects

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    were his strikeouts, walks, and hom

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    ___ 3. To maximize profits, a produ

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    ___ 19. According to the book, “M

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

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    Chapter 25 Labor Unions The primary

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    The elasticity of demand for union

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    Example 4A: Assume that the graph b

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    Notice from the graph in Example 6

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    Wage Factory A Quantity of Labor S

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    As a cartel, a labor union faces a

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    ___ 10. For a monopsony: a. there i

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    3. The graph below represents a lab

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    Chapter 26 Interest, Present Value,

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    An increase in expected rates of re

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    An asset is valuable because we exp

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    Example 13B: General Ordnance prove

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    Appendix: Present Value Table One f

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    ___ 4. An increase in expected rate

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    Problems: 1. List and explain the t

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    Chapter 27 Market Failure The basic

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    External Benefit If a market genera

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    Example 2: To encourage the consump

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

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    A common good is nonexcludable. Non

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    Study Guide for Chapter 27 Chapter

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    ___ 5. What government policy would

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    4. Based on the information on the

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    Chapter 28 Public Choice and Govern

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    Candidates and the Median Voter Mod

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    Example 8: According to State and F

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    Example 10: When Elvis Presley was

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    4. Pessimistic bias. This is the te

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    ___ 5. An elected official will: a.

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    2. If a certain policy will yield s

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    Chapter 29 Government Regulation of

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    underproduction is the amount that

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    micromanagement results in business

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    market. They may agree with their c

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    Questions for Chapter 29 Fill-in-th

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    ___ 10. The public interest theory

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    4. List the four types of costs imp

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    Chapter 30 Agriculture and Health C

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    weather may cause bumper crops. Bad

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    Security and Rural Investment Act o

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    Example 12: From 1960 to 2013, the

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    1. NHI would provide universal heal

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    d. Insurance providers are not allo

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    Study Guide for Chapter 30 Chapter

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    Answer questions 7. through 10. by

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    ___ 21. If there were no individual

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    Chapter 31 Income Distribution and

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    Income is more equally distributed

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    over a typical career is the accumu

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    Ideal Income Redistribution The ide

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    Poverty - a family whose income fal

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    Appendix: Income Inequality around

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    How is this story an analogy for th

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    ___ 2. In 2013, the Lowest Income 6

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    Problems: 1. Explain the two primar

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    Absolute advantage - when one natio

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    Fiat money - money by government de

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    Nonrivalrous good - a good for whic

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    Absolute advantage, 16-9 Absolute e

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    “Company town”, 25-6 Comparativ

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    Eli Lilly and Company, 22-1 Emergen

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    Houston, Texas, 15-10 Human capital

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

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    Political bias, 9-4, 12-7 Political

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    Short run production, 20-2-3 Short-

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

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