The Saying "The Lower the Price, the Better" May Not

question 117

Multiple Choice

The saying "the lower the price, the better" may not always be correct for an economy's public interest because

• A)people should have to pay for what they want.
• B)people will overuse something they perceive as being cheaper than the utility they receive for it.
• C)the government can no longer afford to provide all the goods and services it provides because it is slowly going broke.
• D)cheaper prices will make people buy less of other things.

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Definitions:

Quantity Equation

An equation that relates the quantity of money in an economy to the nominal value of economic output, often used in monetary theory to predict inflation.

Money Supply

The total capital resources in monetary terms within an economy at a certain time.

Price Level

An index of the aggregate prices of all goods and services in an economy, often measured by a consumer price index or GDP deflator.

Inflation Tax

An implicit tax where the government benefits from inflation by reducing the real value of public debt, but it also reduces the purchasing power of money held by the public.