We say that individuals get a "warm glow" from giving to a public good if they not only get utility from the public good but also from giving itself. Explain the following: "While warm glow lessens the free rider problem, it cannot eliminate it."
What will be an ideal response?
The private benefits one gets from giving keep us giving even when the number of individuals increases and the free rider problem gets large. However, the free rider problem is still there -- to the extent to which we value the public good, we give too little relative to the efficient level. Only if the only utility we get is from the warm glow does the free rider problem disappear -- but that's because the public goods problem has then disappeared.
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In the above figure, starting at E3, if there is an increase in technology that causes a permanent increase in production capabilities
A) aggregate supply would shift to SRAS0 and LRAS1 would shift to LRAS0. B) aggregate supply would shift to SRAS2 and LRAS0 would shift to LRAS1. C) aggregate supply would shift to SRAS1 and LRAS0 would shift to LRAS1. D) aggregate supply would shift to SRAS1 and then return to SRAS0.
The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately ________ percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately ________
percent a year. A) 0; 2 B) 4; 6 C) 6; 8 D) 6; 4