Consider the two economies of Lithasia and Barylia. Economic agents in Lithasia have coordination and incentive problems, while in Barylia social surplus is maximized
Which economic system does each of these economies most likely have? Explain your answer.
A coordination problem refers to the problem of bringing agents together to trade and an incentive problem refers to the problem of aligning the interests of economic agents. Because Lithasia has both problems, it is most likely to be a command economy. On the other hand, Barylia is characterized by maximum social surplus. It is likely to be a free market economy.
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Alberto purchases ten cups of coffee a week. The amount of money that he holds to purchase ten cups of coffee is the
A) asset demand for money. B) precautionary demand for money. C) money balance demand for money. D) transactions demand for money.
Suppose that cigarette smokers create a negative externality. Further suppose that the government imposes a tax on cigarettes equal to the per-unit externality. What is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of cigarettes?
a. They are equal. b. The after-tax equilibrium quantity is greater than the socially optimal quantity. c. The after-tax equilibrium quantity is less than the socially optimal quantity. d. There is not enough information to answer the question.