Sanjay has an ATV that he values at $3,000. Marilu is looking for a similar ATV but will only pay up to $2,400
Will trade between these two occur? Is there a policy government could implement that would encourage a trade to occur between Sanjay and Marilu? If so, what is that policy and will the policy make society richer?
In a free market, no trade will take place. Government could subsidize the trade to encourage the trade to take place. If the government offered a subsidy of $700 to ATV buyers, Marilu could spend up to $3,100 on the ATV but only be $2,400 out of pocket, so there is no consumer surplus. Sanjay would receive $3,100, so his producer surplus is $100. This total gain in surplus of $100 is offset by the $700 loss to taxpayers, so society ends up $600 poorer.
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All of the following are possible consequences of noise traders EXCEPT
A) increased volatility in the financial market. B) asset prices differing from fundamental values. C) herd behavior contributing to speculative bubbles. D) reduced volatility of asset prices.
Wall Street bankers opposed the Second Bank of the United States. Their opposition was based on the idea that the Second Bank
a. lent too freely to the federal government. b. followed a monetary policy that favored stable prices even at the cost of a slower growing economy. c. followed a monetary policy that kept interest rates too high. d. favored Philadelphia because that was where the head office of the bank was located.