Suppose the government currently places tariffs and/or other import restrictions on good X. Will imposing a tariff and/or trade restriction on good Y necessarily reduce overall social welfare for the economy?
What will be an ideal response?
No, this follows from the contrapositive of the Theory of the Second Best. If removing one market distortion while leaving others in place may increase or decrease social welfare, the same is true for adding a market restriction while others are in place.
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Shaniq buys only soda and pizza and is buying the amounts that maximize her utility. The marginal utility from a soda is 30 and the price of a soda is $2. The marginal utility from a slice of pizza is also 30. The price of a slice of pizza must be
A) $30. B) $2. C) $1. D) some amount that cannot be calculated without more information.
The demand for _____ is most severely affected by a recession
a. medicines b. automobiles c. breakfast cereals d. haircuts e. gasoline