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Economics

Paul A. Samuelson, William D. Nordhaus

Chapter 2

The Modern Mixed Economy - all with Video Answers

Educators

Chapter Questions

02:42

Problem 1

What determines the composition of national output? In some cases, we say that there is "consumer sovereignty," meaning that consumers decide how to spend their incomes on the basis of their tastes and market prices. In other cases, decisions are made by political choices of legislatures. Consider the following examples: transportation, education, police, energy efficiency of appliances, health-care coverage, television advertising. For each, describe whether the allocation is by consumer sovereignty or by political decision. Would you change the method of allocation for any of these goods?

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
04:04

Problem 2

When a good is limited, some means must be found to ration the scarce commodity. Some examples of rationing devices are auctions, ration coupons, and first-come, first-served systems. What are the strengths and weaknesses of each? Explain carefully in what sense a market mechanism "rations" scarce goods and services.

Natalie Britton
Natalie Britton
Numerade Educator
01:19

Problem 3

This chapter discusses many "market failures," areas in which the invisible hand guides the economy poorly, and describes the role of government. Is it possible that there are, as well, "government failures," government attempts to curb market failures that are worse than the original market failures? Think of some examples of government failures. Give some examples in which government failures are so bad that it is better to live with the market failures than to try to correct them.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
03:53

Problem 4

Consider the following cases of government intervention: regulations to limit air pollution, income support for the poor, and price regulation of a telephone monopoly. For each case, $(a)$ explain the market failure, $(b)$ describe a government intervention to treat the problem, and $(c)$ explain how "government failure" (see the definition in question 3 ) might arise because of the intervention.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
16:27

Problem 5

The circular flow of goods and inputs illustrated in Figure 2 -1 has a corresponding flow of dollar incomes and spending. Draw a circular-flow diagram for the dollar flows in the economy, and compare it with the circular flow of goods and inputs. What is the role of money in the dollar circular flow?

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
03:31

Problem 6

Consider three periods of American history: $(a)$ the early $1800 \mathrm{s},$ when Jones lived on an isolated farm cut off from the rest of the world; $(b)$ the late 1940 s, when Smith lived in a country where domestic trade and exchange was extensive but international trade was cut off because of damage from World War II; and (c) 2009, when Hall lives in a globalized world that promotes trade with all countries.
Suppose you were living in each of these situations. Describe the opportunities for specialization and division of labor of Jones, Smith, and Hall. Explain how the globalized world in $(c)$ both allows greater productivity of Hall and allows a much greater variety of consumption goods. Give specific examples in each case.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
01:00

Problem 7

"Lincoln freed the slaves. With one pen stroke he destroyed much of the capital the South had accumulated over the years." Comment.

Kaylee Mcclellan
Kaylee Mcclellan
Numerade Educator
23:32

Problem 8

The table to the right shows some of the major expenditures of the federal government. Explain how each one relates to the economic role of government.

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator
11:17

Problem 9

Why does the saying "No taxation without representation" make sense for public goods but not private goods? Explain the mechanisms by which individuals can "protest" against $(a)$ taxes that are thought excessive to pay for defense spending, $(b)$ tolls that are thought excessive to pay for a bridge, and $(c)$ prices that are thought excessive for an airline flight from New York to Miami.

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator