Question

Suppose that Shen, an economist from an AM talk radio program, and Valerie, an economist from the University of Massachusetts, are arguing over government bailouts. The following dialogue shows an excerpt from their debate:

Valerie: Thanks to recent financial crises, the concept of bailouts is a hot topic for debate among everyone these days.

Shen: Indeed, it's gotten crazy! A government bailout of severely distressed financial firms is unnecessary because free markets will properly price assets.

Valerie: I don't know about that. Without a bailout of severely distressed financial firms, the economy will experience a deep recession.

The disagreement between these economists is most likely due to:

1) Differences in perception versus reality

2) Differences in scientific judgements

3) differences in values

Despite their differences, with which propositional two economists chosen at random most likely to agree?

1) Rent ceilings reduce the quality and quantity of available housing.

2) Immigrants receive more in government benefits than they contribute in taxes.

3) Having a single income tax rate would improve economic performance.

Answer 1

Question 1 is Differences in perception versus reality

Question 2 is Rent ceilings reduce the quality and quantity of available housing.

Step-by-step explanation:

Question 1

Perception is a way of regarding, understanding, or interpreting something; a mental impression as result of pre-existing notions. Shen judgement was based on her knowledge of economics of free markets without taking into consideration of exceptions.

Reality on the other hand is the state of things as they actually exist, as opposed to an idealistic or notional idea of them. Shen with her economics knowledge understands that the situation on ground does not conform with what Valerie knows. This is because perception is inherently flexible and speculative while reality disrespects viewpoints and view angles and is inherently rigid and factual.

Question 2

Rent ceilings stimulate demand and this cause shortages. Where the ceiling is set, there is more demand than at the equilibrium price.

This leads to shortage of supply of rent housing. This is because investors and landlords will stop building new houses or apartments to satisfy existing or increasing quantity demand. This shortage of supply somehow will lead to search activity and invariably affect the quality and quantity of available housing.