A one-dollar tax reduction has the same effect as a one-dollar increase in government purchases.

The power of the supply and demand model lies in its ability

A) to generally predict how price and quantity will change with supply and demand shocks. B) to precisely predict the impact of government regulations on quantity and price. C) to precisely determine the difference between price ceilings and price floors. D) to generally predict how profit motive impacts the distribution of goods and services.

In a market system, how are the terms of exchange established?

a. Industry associations set up acceptable price ranges for their goods, and firms within each industry are required to set price within its relevant range. b. The forces underlying supply and demand interact to set a price c. Federal and state legislation establish minimum and maximum prices. d. Consumer advocacy groups establish fair prices for items, and most firms comply because they don’t want to anger their customers.