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T A firm facing a perfectly elastic demand for its product is a price taker. A firm that can raise its price without losing all of its customers (and that must lower its price in order to sell more units) is a price searcher. Y To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues than to costs. Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost. y...

Personal Retirement Accounts And Social Security Reform

When the number of workers is growing rapidly and each successive generation is larger than the one that preceded it, a pay-as-you-go system can work well and yield a reasonable return. But we are now in an era when the number of retirees is growing more rapidly than the number of workers. In this environment, Social Security is not a good investment. As we previously mentioned, today's typical worker can expect a return of only 2.0 percent from the taxes paid into the system. Social Security...

Exhibit 3

Almost half of federal revenues are derived from the personal income tax. The payroll tax and corporate income tax are also major sources of federal revenue. The major revenue sources of state and local governments are sales and excise taxes, personal income taxes, user charges, grants from the federal government, property taxes. State and local revenue 1808 billion State and local revenue 1808 billion (b) State and local governments, 2002 government V x Corporate 19.9 income (b) State and...

Competitive Pricesearcher Markets

Markets that are characterized by (l)low entry barriers and (2) firms that face a downward-sloping demand curve are called competitive price-searcher markets.2 The low entry barriers ensure that these markets are competitive, and the firm's downward-sloping demand curve means that the sellers in these markets have to search for the price and output combination that will maximize their profits. In contrast with price-taker markets, in which the firms produce identical products, price searchers...

Applications In Economics

The Imposition of Price Ceilings During Hurricane Hugo In the fall of 1989, Hurricane Hugo struck the coast of South Carolina, i ausing massive property damage and widespread power outages la ting for weeks. The lack of electric power meant that gasoline pumps, refrigerators cash registers, ATMs, and many other types of electrice equipment did not work. In the hardest-hit coastal areas such as Charleston, the demand for items such as lumber, gasoline, ice, batteries, chain saws, and electric...

Trade Barriers And Popular Trade Fallacies

Fallacies abound in the area of international trade. Why Failure to consider the secondary effects of international trade is part of the answer. Key elements of international trade are closely linked you cannot change one element without changing the other. For example, you cannot reduce imports without simultaneously reducing the demand for exports. The political incentive structure is also a contributing factor. As business, labor, and political leaders seek to gain from trade restrictions,...

T I 0 N S

How would the following changes influence the rate of interest in the United States a. An increase in the positive time preference of lenders b. An increase in the positive time preference of borrowers c. An increase in domestic inflation d. Increased uncertainty about a nuclear war e. Improved investment opportunities in Europe 2. Any return to capital above the pure interest yield is unnecessary. The pure interest yield is sufficient to provide capitalists with the earnings necessary to...

Exhibit

Three Different Types of Long-Run Average Total Cost Curves For one type of LRATC curve, economies of scale are present for output levels less than q. but immediately beyond q. diseconomies of scale occur a . In another instance, economies of scale are important until some minimum output level q is attained. Once the minimum level has been attained, there is a wide range of output levels q1 to q2 consistent with the minimum ATC for the industry b . In the third situation, economies of scale...

Licati0ns In Economics

Tribes to benefit financially from the presence of elephants. They have allowed domestic trade in ivory. Other countries, such as Kenya, have banned the ivory trade and have forbidden such gains to landowners from the elephants, instead making their government responsible for protecting them. From 1979to 1989, property rights and market conservation helped push elephant numbers from 50,000 up to 94,000 in Zimbabwe and Botswana, while Kenya's elephant population fell from 65,000 to 19,000. The...

Info

Y The four major barriers to entry into a market are economies of scale in uncontestable markets , government licensing, patents, and control of an essential resource. Y A monopoly is present when there is a single seller of a well-defined product for which there are no good substitutes and the entry barriers into the market are high. Although there are only a few markets in which the entire output is supplied by a single seller, the monopoly model also helps us better understand the operation...

T I C A L

1, Which of the following do you think would lead to an increase in the current demand for beef c. higher prices of feed grains used to feed cattle d. widespread outbreak of mad cow or foot-and-mouth disease e. an increase in the price of beef 2. What is being held constant when a demand curve for a specific product shoes or apples, for example is constructed Explain why the demand curve for a product slopes downward to the right. 3. What is the law of supply How many of the following goods do...

More Buffalo Than Cattle Two Centuries

The highest valued activity sacrificed when a choice is made is the opportunity cost of the choice differences or changes in opportunity costs help explain human behavior. y Mutual gain is the foundation of trade. When two parties engage in voluntary exchange, they are both made better off. Trade creates value because it channels goods and resources to those who value them the most. Transaction costs the time, effort, and other resources necessary to search out, negotiate, and conclude an...