Explain why choices respond to incentives and think of three incentives to which you have responded today
What will be an ideal response?
People making rational decisions compare the marginal benefits of different actions to their marginal costs. Therefore people's choices change when their incentives, that is the marginal benefit and/or marginal cost, of the choice changes. Just as everyone else, students respond to incentives; a) A student studies because of the incentives offered by grades. b) A student is more likely to attend a class if attendance is factored into the grade. c) A student might attend a meeting of a club if the student's significant other is eager to attend the meeting.
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Two firms, each producing different goods, can achieve a greater output than one firm producing both goods with the same inputs. We can conclude that the production process involves
A) diseconomies of scope. B) economies of scale. C) decreasing returns to scale. D) increasing returns to scale.
If aggregate demand in the U.S. had grown more slowly than it actually did in 2010, the
a. unemployment rate would have been even lower. b. inflation rate would have been even lower. c. unemployment rate would have been the same. d. economy would have grown faster.