Author Question: Assume that you have heard news that a local radio station is hosting a luncheon at your school by ... (Read 154 times)

crobinson2013 · **on:** Jun 29, 2018

Assume that you have heard news that a local radio station is hosting a luncheon at your school by offering hot dogs, chips and cola at no expense to the student body. Why would economists say that this lunch is not truly free?

What will be an ideal response?

Question 2

Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency.

Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should
A) decrease. B) increase.
C) not change. D) increase, then decrease.

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

Answer to Question 1

The lunch is not free for a couple of reasons. First, in order for the radio station to offer it they had to give up real resources in order to provide it. Secondly, it is likely that if the luncheon is offered at no expense to the students they will likely have to spend at least some amount of time waiting in line to get it. This time represents an opportunity cost which is not likely to be free.

Answer to Question 2

B