Category: Economics

➤ Why adjust nominal values for inflation?
Adjusting removes the effect of changing price levels so you can compare economic quantities over time. Economists use inflation-adjusted, or real, figures to measure growth, productivity, and living standards. Using a price index converts current-dollar amounts into constant-dollar equivalents and avoids misinterpreting nominal increases driven solely by inflation.

➤ How does a corrective subsidy differ from a Pigouvian tax?
A corrective subsidy incentivizes underprovided beneficial activities, while a Pigouvian tax discourages overproduced harmful activities. Subsidies lower costs or boost returns; taxes raise prices or reduce consumption. Both aim to align private incentives with social costs and benefits, but they use opposite price signals to correct different kinds of externalities.

Who bears the majority of the tax incidence when demand and supply have the same elasticities
Question 38
options:
Sellers
Buyers
It is proportional for both
The government

➤ What is the relationship between total revenue and elasticity?
Total revenue responds to price changes depending on elasticity. If demand is elastic (|PED|>1), a price rise lowers revenue. If demand is inelastic (|PED|<1), a price rise raises revenue. If demand is unit elastic (|PED|=1), revenue stays about the same after a small price change.

4.
➤ When can economics be treated like a natural science?
Economics resembles a natural science in settings with strong experimental control or consistent behavior. Lab experiments, randomized policy evaluations, and detailed market studies produce replicable results. In these cases, models generate precise predictions and researchers can test causal mechanisms much like in experimental psychology or biology.