ECON 1BB3 Test 1 ReviewSessionAnswerKey.doc - ECON 1BB3...

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ECON 1BB3 Test 1 Review Questions S18 – Answers 1 1. Efficiency is the property of society getting the most it can from its scarce resources. Equity is defined as the property of distributing economic prosperity fairly among the members of society. Often, these two goals conflict. When the government redistributes income from the rich to the poor, it reduces the reward for working hard. Fewer goods and services are produced and the economic pie gets smaller. When the government tries to cut the economic pie into more equal slices, the pie gets smaller. Policies aimed at achieving a more equal distribution of economic well-being, such as the welfare system, try to help those members of society who are most in need. The individual income tax asks the financially successful to contribute more than others to support the government. 2. a, b, e, g, h, and j are microeconomic topics. c, d, f, and i are macroeconomic topics. 3. a, c, e, f, and i are positive statements. b, d, g, h, and j are normative statements. 4. See answers below: a) The name of the shape of the frontier is “bowed outward” or “concave” to the origin. b) Points A , D and B are efficient. These points are efficient because they lie on the boundary of the production possibility frontier. c) Point E is inefficient because it lies inside the production possibilities frontier. Points inside the production possibilities frontier represent resources that are wasted, idle or misallocated. d) The attainable region is represented by points on or inside the production possibilities frontier. (see diagram)
ECON 1BB3 Test 1 Review Questions S18 – Answers 2 e) The unattainable region is represented by points outside the production possibility frontier (see diagram) f)

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