As a result of a decrease in the price of gasoline, consumers can afford to buy more gasoline for more driving trips. This is an illustration of
A. consumer sovereignty.
B. the substitution effect.
C. diminishing marginal utility.
D. the income effect.
Answer: D
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Net national product is equal to
a. GNP minus taxes. b. GNP plus transfer payments. c. GNP plus corporate profits. d. GNP minus capital consumption allowance.
An economist at the University of Alaska at Anchorage has been asked to explain why the price of Alaskan crude oil has fallen recently. In order to develop a model, the professor should take which steps?
a. Identify the problem, develop a model based on simplifying assumptions and test the model to formulate a conclusion. b. Gather data on crude oil prices and seemingly unrelated variables in order to look for associations, then formulate a hypothesis based on those unexpected associations. c. Ask people in Alaska why they are not purchasing oil. d. None of these. The oil industry is controlled by a cartel; therefore price changes in the industry cannot be explained using economic theories.
The cartel consisting of Firm A and Firm B can become unstable if: a. Firm A manages to enhance the quality of its product. b. both the firm sell homogeneous products
c. Firm B decides to decrease its output. d. both firms decide to decrease industry output.
After a particular loan has been paid off, neither the borrower nor the lender has lost purchasing power. Therefore, it must be true that actual inflation was
a. greater than expected inflation. b. equal to expected inflation. c. less than expected inflation. d. greater than the nominal rate of interest.