Calculate the arc price elasticity of demand for wheat in the two situations below: The Wheat Market Farmer Brown’s Wheat Old price; $3.40/bu Old price; $3.40/bu Old quantity; 2.5 billion bu Old quantity; 28,000 bu New price; $3.20/bu New price; $3.20/bu New quantity; 2.525 billion bu New quantity; 35,000 bu Can you account for the […]
Assume a change in price causes the price elasticity of demand for a good (in absolute value) and marginal revenue to decrease. In this case we can conclude that the price of the good was: A) increased. B) held constant. C) decreased. D) cannot be determined. ANSWER C
By and large, the price of each item on a restaurant menu is: A) an accurate reflection of the item’s marginal cost. B) based strictly on consumer demand. C) a function of cost and the price elasticity of demand for the item. D) a fixed multiple of the item’s total cost. ANSWER C
Assume there is a simultaneous increase in home foreclosures and a decrease in consumer incomes. Based on this information we can conclude, with certainty, that in the market for used single-family homes equilibrium: A) price will increase. B) price will decrease. C) quantity will increase. D) quantity will decrease. ANSWER B
If the inputs to a production process are perfect substitutes and the marginal rate of technical substitution is equal to the ratio of the prices of the two inputs, the firm can choose from a virtually infinite array of combinations of the two inputs to minimize the costs of producing a given level of output. […]
Low stock market prices might ________ consumers willingness to spend and might ________ businesses willingness to undertake investment projects. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase ANSWER C
In the consumption function, the real interest rate, consumer confidence, wealth, available consumer credit, and consumer debt are captured in the autonomous consumption term of the consumption function. Indicate whether the statement is true or false ANSWER TRUE
Assume a firm is producing 1000 units of a good by using two inputs, capital and labor, whose per unit prices are $50 and $20. Assume also that the marginal physical product of the last unit of capital is 25 and the marginal physical product of the last unit of labor is 15. In order […]
Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos? A) Price will increase; quantity cannot be determined. B) Price will decrease; quantity cannot be […]
The practice of setting price by increasing the average costs of production by some percentage is referred to as: A) average cost pricing. B) percentage pricing. C) rate-of-return pricing. D) markup pricing. ANSWER D
