During the mid 1980s the price of gasoline fell. Americans purchased not only more gasoline but other goods as well. Use consumer theory to explain why this happened
What will be an ideal response?
Essentially two effects are unleashed at the same time. The substitution effect induces people to consume more of the good whose relative price fell and the income effect from the lower-priced gasoline induces people to consumer more of all goods including gasoline.
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Why has there been an increase in the inequality of income?
a. The demand for skilled workers has declined. b. The demand for skilled workers has remained constant and the demand for unskilled workers has declined. c. The government policies went against the unskilled workers. d. The demand for skilled workers has increased and the demand for unskilled workers has not kept pace. e. The demand for unskilled workers has increased as they could be hired for lower wages.
Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?