William Gregg Owned a Mill in South Carolina

question 141

Multiple Choice

William Gregg owned a mill in South Carolina.In December 1862,he placed a notice in the Edgehill Advertiser announcing his willingness to exchange cloth for food and other items.Here is an extract: 1 yard of cloth for 1 pound of bacon
2 yards of cloth for 1 pound of butter
4 yards of cloth for 1 pound of wool
8 yards of cloth for 1 bushel of salt
If the money price of bacon was 20¢ a pound and the money price of salt was $2.00 a bushel,people would

• A)buy bacon and trade it for cloth because they could buy 8 yards of cloth for only $1.60,and use that cloth to obtain a bushel of salt.
• B)not buy bacon and trade it for cloth because they would have to buy 8 yards of cloth for $1.60 and then give Mr.Gregg an extra $0.40 to buy a bushel of salt.
• C)buy bacon and trade it for cloth and then trade the cloth for salt because salt is more important for life than either cloth or bacon.
• D)not buy bacon and trade it for cloth because the relative price of 1 bushel of salt is only 1/8 yard of cloth.
• E)buy bacon and trade it for cloth because cloth is more expensive than bacon.

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Definitions:

Marginal Tax Rate

The rate at which the last dollar of income is taxed, reflecting the incremental rate applied to income in the highest tax bracket.

Average Tax Rate

The ratio of the total amount of taxes paid to the total tax base (income, expenditure, or asset), represented as a percentage.

Proportional

Characterized by or corresponding in size, degree, or intensity according to a fixed ratio or relationship.

Price Elasticity

A measure indicating how much the quantity demanded of a good responds to a change in its price, often illustrating the sensitivity of demand to price changes.