Author Question: Critically evaluate the following statement. Automobile manufacturers continue to produce cars that ... (Read 59 times)

altibaby · **on:** Jun 29, 2018

Critically evaluate the following statement. Automobile manufacturers continue to produce cars that are dangerous.

Therefore the industry should be considered as a market failure and safety mandates should be imposed by the government to insure that all cars are completely safe.

Question 2

If the tax multiplier is -1.5 and a 200 billion tax increase is implemented, what is the change in GDP, holding everything else constant? (Assume the price level stays constant.)

A) a 133.33 billion increase in GDP
B) a 133.33 billion decrease in GDP
C) a 30 billion increase in GDP
D) a 300 billion decrease in GDP
E) a 300 billion increase in GDP

lcapri7 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Safety is a good that people choose to purchase. Evidence of this is apparent around us. Some people choose to purchase more expensive cars that are safer than others. Typically these cars are produced with more safety features, are heavier and larger than other cars. Some people choose to purchase smaller cars for their fuel economy. By doing so they are implicitly choosing to purchase less safety. It is not necessarily a form of market failure if people are getting what they pay for.

Answer to Question 2

D