Suppose your coffee shop earns $25,000 in total revenues per month with explicit costs of $15,000 and opportunity costs of $10,000. Your economic profit is
A) $16,000.
B) $12,000.
C) $5,000.
D) zero.
Answer: D
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Purchasing power parity's assumption that the real exchange is constant
A) is correct in nearly all instances. B) would be correct were it not for the existence of trade barriers. C) is not reasonable. D) is correct for trade between the United States and Japan, but incorrect in most other bilateral trading relations.
Assume an Australian importer expects to pay 16,000 Australian dollars (AUD) for $8,000 worth of U.S. goods, but on the shipment date 30 days later, the same volume of U.S. goods costs the Australian importer only 10,000 Australian dollars. This means that between the contract date and the payment date, the exchange rate has changed:
a. from $1 = 1.25 AUD to $1 = 2.0 AUD. b. from $1 = 2.0 AUD to $1 = 1.25 AUD. c. from $1 = 0.8 AUD to $1 = 0.5 AUD. d. from $1 = 0.5 AUD to $1 = 0.8 AUD. e. from $1 = 0.5 AUD to $1 = 2.0 AUD.
The price index is the index year with a base price other years are compared when constructing an index. The index equals 100
Indicate whether the statement is true or false
If over the next few years inflation is higher in Mexico than in the U.S., then according to purchasing-power parity which of the following should rise?
a. the U.S. real exchange rate but not the U.S. nominal exchange rate b. the U.S. nominal exchange rate but not the U.S. real exchange rate c. the U.S. real exchange rate but not the U.S. nominal exchange rate d. neither the U.S. real nor the U.S. nominal exchange rate