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$8 - 7 - 6 - 5 - Price 4 - 3 - 2 - 1 - Answers to Chapter 3 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 Quantity Fill-in-the-blanks: 1. Demand 9. Technological 2. inversely 10.freemarket 3. normal 11. Equilibrium 4. inferior 12. surplus 5. Supply 13. shortage 6. directly 14. ceiling 7. cost, production 15. floor 8. decrease Multiple Choice: 1. b. 8. b. 15. a. 2. a. 9. c. 16. c. 3. c. 10. c. 17. d. 4. b. 11. b. 18. b. 5. c. 12. c. 19. b. 6. d. 13. b. 20. c. 7. b. 14. d. FOR REVIEW ONLY - NOT FOR DISTRIBUTION 3 - 17 Demand, Supply, and Equilibrium
Problems: 1. The five determinants of demand are: (1) Income (2) Preferences (3) Prices of related goods (substitutes or complements) (4) Number of buyers (5) Expectations of future price 2. The reason for the direct relationship between price and quantity supplied is the seller’s goal of profit-maximization. For the seller to make a profit, the selling price must be sufficient to cover the seller’s cost of production. An increase in the selling price will make it easier for sellers to cover their cost of production. An increase in the selling price will cause existing producers to increase their production and will attract new producers into the market. Thus, an increase in the selling price will cause an increase in the quantity supplied. 3. A price ceiling is a maximum legal price. A price ceiling will lead to: a. A shortage. b. Fewer exchanges than at equilibrium. c. The use of non-price rationing devices. d. Illegal transactions at prices above the ceiling. 4. $8 - 7 - 6 - 5 - Price 4 - 3 - 2 - 1 - 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 c. Equilibrium price and quantity #1 is $6 and 6 units e. Equilibrium price and quantity #2 is $5 and 7 units Quantity S1 S 2 FOR REVIEW ONLY - NOT FOR DISTRIBUTION D Demand, Supply, and Equilibrium 3 - 18
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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
Page 22 and 23: Chapter 1 Scarcity and Choices The
Page 24 and 25: Example 5B: At the end of 1982, the
Page 26 and 27: Example 11: When Cindy quits her jo
Page 28 and 29: consequences may result in failure
Page 30 and 31: An upward sloping curve (as in Exam
Page 32 and 33: In making decisions, humans tend to
Page 34 and 35: 5. ______________________ _________
Page 36 and 37: ___ 13. If the value of one variabl
Page 38 and 39: Y Point X Y A 0 1 B 3 3 C 6 5 D 9 7
Page 40 and 41: Chapter 2 Trade and Economic System
Page 42 and 43: Example 4B: The following quantitie
Page 44 and 45: 1. An increase in the quantity of r
Page 46 and 47: 3. For whom to produce? This is det
Page 48 and 49: The graph below illustrates the shi
Page 50 and 51: The two primary economic systems ar
Page 52 and 53: ___ 12. The capitalist vision sees
Page 54 and 55: ___ 25. According to the book “Ca
Page 56 and 57: Chapter 3 Demand, Supply, and Equil
Page 58 and 59: . For inferior goods, income and de
Page 60 and 61: The same information can be placed
Page 62 and 63: Not only does a free market elimina
Page 64 and 65: $7 - 6 - 5 - S 3 S1 S 2 Price 4 - 3
Page 66 and 67: Example 17: The graph below illustr
Page 68 and 69: Questions for Chapter 3 Fill-in-the
Page 70 and 71: ___ 12. Assuming a market originall
Page 74 and 75: Chapter 4 Inflation and Unemploymen
Page 76 and 77: Computing the Rate of Inflation The
Page 78 and 79: Full Employment Though unemployment
Page 80 and 81: 3. Cyclical unemployment - due to d
Page 82 and 83: During the Great Depression, the ec
Page 84 and 85: Appendix: Think Like an Economist -
Page 86 and 87: Answer questions 8. and 9. based on
Page 88 and 89: ___ 25. The extension of unemployme
Page 90 and 91: Chapter 5 Measuring Total Output: G
Page 92 and 93: 5. Leisure. Leisure time is by defi
Page 94 and 95: The U.S. is a high per capita GDP c
Page 96 and 97: Example 17: In “An International
Page 98 and 99: The simple circular flow diagram be
Page 100 and 101: ___ 3. Which of the following would
Page 102 and 103: 2. Explain what nonproduction trans
Page 104 and 105: Chapter 6 The Aggregate Market The
Page 106 and 107: Example 2C: Assume the same facts a
Page 108 and 109: Example 5B: The price of crude oil
Page 110 and 111: Price Level Real GDP SRAS AD 2 AD 1
Page 112 and 113: Appendix: Why the Aggregate Demand
Page 114 and 115: ___ 3. DEF Company can invest in ne
Page 116 and 117: 2. List and explain the two factors
Page 118 and 119: Chapter 7 Classical Economic Theory
Page 120 and 121: 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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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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___ 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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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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