Long-run real interest rates are
expected to increase. An accountant and an MBA student (who just
finished his course of Managerial
Economics) where interviewed regarding the effect on the
firm they both work at. Keeping all else constant, their answer
would likely differ. How do you guess the interviewed will answer?
Does the difference in response matters? If yes, why? If not, why
Many cities have experienced a
substantial decrease in the amount of garbage being collected after
they changed from levying a tax on each household to pay for the
pickup to charging a fee for each bag or can picked up. Would this
have been the result of a change in Demand? If so, why; if not, why
not? If not, what was the probable reason?
A magazine, in an article dealing
with management, wrote, “When he took over the furniture factory
three years ago … [the manager] realized almost immediately that it
was throwing away at least $100,000 a year worth of wood scrap.
Within a few weeks, he set up a task force of managers and workers
to deal with the problem. And within a few months, they reduced the
amount of scrap to $7,000 worth [per year].” Was this necessarily
an economically efficient move? Explain your
An emissions fee is paid to the government, whereas an injurer, who issued and held liable, pays damages directly to the party harmed by an externality. What differences in the behavior of victims might you expect to arise under these two arrangements?