Question

2.

Diamonds are expensive and water is cheap. Yet water is essential for life but diamonds are not essential to live. What explains this?

Multiple Choice

• In a normal marketplace if there is less supply, then the market price will be higher.

• Diamonds are rare and hard to find so this is why they are more expensive.

• Water is everywhere and plentiful and this is why water is cheap.

• All of the statements are correct.

4.

The marginal product per worker will always increase if there are cuts in the costs of production. There has always been a traditional and beneficial correlation between these two factors

True or False

5.

In 2013, the IRS published a famous study that showed that the top 10 percent of households that earned the most money paid 70 percent of all federal taxes. The top 25 percent of households paid 87 percent of all federal taxes. Meanwhile, the entire bottom 50 percent of households only paid 3 percent of all federal taxes. It also showed that the bottom 50 percent of households received about half of all the taxes paid by the top 50 percent of households in the form of financial assistance such as college grants, food stamps, Section 8 housing subsidies, and other entitlement programs. What can we conclude?   

Multiple Choice

• If someone said, “It’s not fair that the wealthy are not paying more taxes,” then this would be a normative economic statement with the information we have from the IRS.    

• Since there were statistical studies performed, then we can say these findings were based on positive economics.

• All statements are correct according to economic theory.

• This study definitely shows there is a major redistribution of wealth from the top earning U.S. households to the bottom half of U.S. households.

• 6.

• What would happen to the Long-Run Average Total Cost Curve if the government cut taxes?

  Multiple Choice

• Nothing would happen. The tax cut will only impact the short-run cost curves.

• It would shift to the left.

• It would shift downward.

• The left-hand side would slope lower and the right hand side would shift higher.

Answer 1

2.Diamonds are expensive and water is cheap. Yet water is essential for life but diamonds are not essential to live. What explains this?

All the statements are correct.

4.The marginal product per worker will always increase if there are cuts in the costs of production. There has always been a traditional and beneficial correlation between these two factors.

False.The marginal product will increase only if there are increasing returns to scale.

5.This study definitely shows there is a major redistribution of wealth from the top earning U.S. households to the bottom half of U.S. households.

• 6.What would happen to the Long-Run Average Total Cost Curve if the government cut taxes?

• Nothing would happen. The tax cut will only impact the short-run cost curves.

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