Chapter 1: Part (b) (page 7)
How do you suppose the higher taxes have affected the incentive for Greek residents to engage in tax avoidance, or legally reduce tax liabilities, including earning less income that is subjected to taxation?
It has increased subsequently.
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How will the long-run adjustment of Egyptian cotton supply from the elimination of the subsidy likely affect the number of suppliers - that is, Egyptian cotton farmers? Explain.
For each of the following approaches that an economist might follow in examining a decision-making process, identify whether the approach relies on the rationality assumption or on the assumption of bounded rationality:
(a) To make predictions about how many apps a person will download onto her tablet device, an economist presumes that the individual faces limitations that make it impossible for her to examine every possible choice among relevant apps.
(b) In evaluating the price that an individual will be willing to pay for a given quantity of a particular type of healthcare service, a researcher assumes that the person considers all relevant health care options in pursuit of his own long-term satisfaction with resulting health outcomes.
(c) To determine the amount of time that a person will decide to devote to watching online videos each week, an economist makes the assumption that the individual will feel overwhelmed by the sheer volume of videos available online and will respond by using a rule of thumb.
Some people claim that the “economic way of thinking” does not apply to issues such as health care. Explain how economics does apply to this issue by developing a “model” of an individual’s choices.
Does the phrase “unlimited wants and limited resources” apply to both a low-income household and a middle-income household? Can the same phrase be applied to a very high-income household?
Suppose that the government has raised by $10 a per-carat tax rate it imposes on diamonds in an effort to influence the production of these particular goods by each of the firms that produce them and purchases by individual consumers. Would we apply microeconomic or macroeconomic analysis to analyze this policy action?
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