In which of the following cases would the price elasticity of demand be expected to increase? A) The number of close substitutes for the good increases. B) The time period under consideration decreases. C) The cost of the good relative to total income decreases. D) The supply of the good increases. ANSWER A
Assume the four-firm concentration ratio in industry X is 75 percent and that the firms in the industry produce a differentiated product. Industry X most likely would be characterized as: A) perfectly competitive. B) a monopoly. C) monopolistically competitive. D) an oligopoly. ANSWER D
In the equation GDP = C + I + G + F, in which F equals net export spending (i.e., total spending on exports minus total spending on imports), imports are subtracted from the other types of expenditures because: A) imports reduce national welfare. B) other countries do not import goods from the U.S. C) […]
When demand is inelastic and price decreases: A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on […]
Which of the following best illustrates the mutual interdependence among firms in the airline industry? A) The considerable efforts made by the various competitors to coordinate fare increases. B) The unwillingness of individual firms to match increased amenities offered by other firms. C) The substantial profits airlines have earned over the past several years. D) […]
Assuming that C = $4,500, I = $1,000, G = $1,200, Exports = $450, Imports = $550, Depreciation = $600, and Indirect Business Taxes = $500 (all in billions of dollars), GDP equals: A) $5,500 billion. B) $6,000 billion. C) $6,400 billion. D) $6,600 billion. ANSWER D
At a price of $5, consumers buy 200 units of good X. When the price falls to $4, quantity demanded increases to 250 units. We can conclude that over this range, demand is: A) elastic. B) unit elastic. C) inelastic. D) perfectly inelastic. ANSWER B
Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is: A) elastic. B) unit elastic. C) inelastic. D) perfectly inelastic. ANSWER C
The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office’s revenues would actually decline as a result of the price increase. It can be concluded that: A) both groups believe demand is elastic, but for different reasons. B) both groups believe demand […]
The type of policy that involves interest rates and the availability of loanable funds is known as: A) fiscal policy. B) monetary policy. C) strategic financial policy. D) federal policy. ANSWER B