Question

Suppose that Lorenzo, an economist from a university in Arizona, and Neha, an economist from a school of industrial relations, are arguing over government bailouts. The following dialogue shows an excerpt from their debate:

Neha: Thanks to recent financial crises, the concept of bailouts is a hot topic for debate among everyone these days.

Lorenzo: Indeed, it's gotten crazy! A government bailout of severely distressed financial firms is unnecessary because free markets will properly price assets.

Neha: I don't know about that. Without a bailout of severely distressed financial firms, the economy will experience a deep recession.

1. The disagreement between these economists is most likely due to

A. differences in scientific judgments

B. differences between perception versus reality

C. differences in values

2. Despite their differences, with which proposition are two economists chosen at random most likely to agree?

A. Minimum wage laws do more to harm low-skilled workers than help them.

B. Lawyers make up an excessive percentage of elected officials.

C. Tariffs and import quotas generally reduce economic welfare.

Answer 1

The classical view is that the economy is self-correcting and will reach equilibrium on its own if given enough time. The Keynesian view is that government intervention in the economy is necessary, especially in very difficult circumstances.Lorenzo supports classical economists view and Neha supports Keynesian viewpoint.

Keynes and Neha supporter of Keynes believe that government action is indispensable to remove economic fluctuations and to achieve free market. Neha's belief of government intervention to stabilize the economy is based on value judgements whereas Lorenzo gives no value to government action and believe that economy can self adjust to the economic fluctuations.So, there is difference in value.

Option C is correct option.

Answer 2

Correct Option is Option C

Eonomists chosen at random are most likely to agree that tariffs and import quotas generally reduce economic welfare, because evidence exists that most of economists agree with this proposition. It would be harder to find two randomly chosen economists who both agree with either of the other propositions.

Tariffs and import quota raise the prices and reduce quantity of goods that are imported thus teducing consumer welfare and government use this tactics to protect the domestic industry.