Author Question: Which of the following is a key criticism of the market economy as a system of allocation? a. Goods ... (Read 18 times)

s.tung · **on:** Jun 30, 2018

Which of the following is a key criticism of the market economy as a system of allocation?
a. Goods and services are allocated unequally based on ability to pay.
b. Producers have strong incentives to innovate because successful innovators are rewarded with higher profit.
c. Consumers can transmit their preference for product quality and variety by way of their dollar votes cast in the marketplace. Since price is freely set based on supply and demand, there are few shortages or surpluses.
d. None of the above.

Question 2

Suppose that consumers become more pessimistic about the future and, as a result, reduce their consumption by 10 billion. If the marginal propensity to consume is 0.80, how will this 10 billion reduction in consumption affect the equilibrium level of real GDP?
a. Real GDP will decrease by 8 billion.
b. Real GDP will decrease by 10 billion.
c. Real GDP will decrease by 40 billion.
d. Real GDP will decrease by 50 billion.