Question

Help needed with review please

Adam Smith argues in the wealth of nations that an economy will produce more goods and services if

a. People act in the public interest than if they act selfishly

b. people act selfishly, than if the government directs economic activity

c. people ignore their own interest and contribute to national wealth as a whole

d. the government controls the use of the nation’s scarce resources

13. Two goods are complements, if an increase in the price of one good

a. Increase the quantity demanded of the other good

b. reduces the quantity demanded of the other good

c. raises the demand for the other good

d. reduces the demand for the other good

17. Trade based on each country's comparative advantage is

a. Ineffective in improving efficiency, since one country’s gain will be offset by the other country’s loss

b. economically inefficient because the country with the absolute advantage is made worse off

c. economically efficient because both countries are better off than they were before they trade

d. economically efficient only if each country also has the absolute advantage in producing their good

21. Rent controls typically end up

a. Raising property values

b. discouraging new housing construction

c. increasing rents received by landlords

d. encouraging landlords to overspend for maintenance

Answer 1

1. b) people act selfishly, than if the government directs economic activity; According to Adam Smith, when individuals act in accordance to their self-interest , it will eventually result in overall society's benefit.

2. d) reduces the demand for the other good; Change in prices of related goods results in a change in demand of the good. Complementary goods are goods that are consumed together. Hence, whe nthe price of one good increases, the demand for the other good will fall as a result.

3. c) economically efficient because both countries are better off than they were before they trade; Countries have comparative advantage when they are able to produce a good at a lower opportunity cost than the other countries. Hence, when countries trade on the basis of theri comparative advantage, they will be trading in goods they can't produce efficiently for goods they can produce efficiently. Hence, this will make them better off than before.

4. b. discouraging new housing construction; In the long run, rent control discourages landlords to maintain the existing housing facilties and reduces the construction of new housing facilities. Thsi is because rent control results in lower income for the landlords, hence, reducing their incentive to construct more hosuign facilities.