The Figure Below Illustrates the Supply and Demand Schedules of Swiss

question 94

Multiple Choice

The figure below illustrates the supply and demand schedules of Swiss francs in a market of freely-floating exchange rates.
Figure 12.1 The Market for Francs

-Refer to Figure 12.1.Should preferences for imports rise in the United States and fall in Switzerland,there would occur a (an) :

• A) Increase in the demand for francs--decrease in the supply of francs-depreciation of the dollar
• B) Increase in the demand for francs--decrease in the supply of francs-appreciation of the dollar
• C) Decrease in the demand for francs--decrease in the supply of francs-appreciation of the dollar
• D) Decrease in the demand for francs--increase in the supply of francs-depreciation of the dollar

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Definitions:

Principle of Second Best

An economic theory that suggests when a condition for a perfect market cannot be met, the next-best solution may involve violating another condition to improve efficiency.

Distortionary Tax

A tax that causes people to alter their behavior and make different economic decisions than they would in a free market, potentially leading to inefficiency.

Efficiency

The extent to which resources are utilized optimally to achieve desired outcomes with minimum waste or effort.

Second Best

A concept in economics that suggests if all optimal conditions cannot be satisfied, the second-best option should be pursued.