As we saw in Chapter 4, economists’ idea of equilibrium borrows a lot from physics. Let’s push the physics metaphors a bit further. Here, we focus just on the supply side. For each set of words in brackets, circle the correct choice:
a. When the government subsidizes an activity, resources such as labor, machines, and bank lending will tend to gravitate [toward/away from] the activity that is subsidized and will tend to gravitate [toward/away from] activity that is not subsidized.
b. When the government taxes an activity, resources such as labor, machines, and bank lending will tend to gravitate [toward/away from] the activity that is taxed and will tend to gravitate [toward/away from] activity that is not taxed.