George's parents let him use the family car whenever he wants, but require that he pays for all gas he uses. George has been driving the car 100 miles per week
His parents want to limit how much he drives the family car, but don't want to impose a major burden on his finances. Mom's plan is to charge him a dollar for each ten miles he drives the car (per week), but to increase his allowance by $10. Dad thinks this plan will have no effect on his driving since he is going to get the money back at the end of the week. Who is right? Explain.
Mom is correct. While it is true that the price and allowance change will allow George to purchase the same bundle of goods as before the changes, his budget constraint is now steeper than before, enabling him to reach a higher indifference curve by driving less often.
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According to your text, the "market economy" can best be understood as
A) an institution created by British merchants around the time of Smith's Wealth of Nations. B) an extremely complex institution that emerged out of individuals specializing and trading among each other. C) an institution unique to America. D) an institution that could not exist in the absence of regulation.
According to the HO model,
A) everyone automatically gains from trade. B) the gainers from trade outnumber the losers from trade. C) the scarce factor necessarily gains from trade. D) None of the above.