What is marginal factor cost? How is it related to the supply curve of an input?
What will be an ideal response?
Marginal factor cost is the cost of using an additional unit of an input. In the case of labor, this equals the wage. For a price taker in input markets, the marginal factor cost equals the price of the input and is the supply curve of the input too.
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Suppose the economy is initially operating at full employment. A reduction in the size of the budget deficit will cause which of the following in the long run?
A) a recessionary gap B) a reduction in real GDP C) an inflationary gap D) none of the above
Wally owns a dog whose barking annoys Wally's neighbor, Corrine. Suppose that the benefit of owning the dog is worth $700 to Wally and that Corrine bears a cost of $500 from the barking. Assuming Wally has the legal right to keep the dog, a possible private solution to this problem is that
a. Wally pays Corrine $600 for her inconvenience. b. Corrine pays Wally $400 to give the dog to his parents who live on an isolated farm. c. Corrine pays Wally $550 to give the dog to his parents who live on an isolated farm. d. The current situation is efficient.