What do we call a good with an income elasticity less than zero?
What will be an ideal response?
Answer: We call this type of good an inferior good. As discussed in Chapter 4, an inferior good is a product you buy more of when your income falls. Necessities have small income elasticities while luxuries normally have high income elasticities.
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Efficiency is an important motive for merger
Indicate whether the statement is true or false
Suppose that one firm produces a product that results in negative external costs to society. This information suggests that
A) resources are under-allocated to the firm. B) the equilibrium market price of the product includes the external costs borne by society. C) resources are over-allocated to the firm. D) at the market price, quantity demanded is less than quantity supplied.
The burden of a tax placed on buyers is:
A. shared between buyers and sellers. B. the buyers' incidence. C. the sellers' incidence. D. higher if the tax is placed on buyers.
Refer to Figure 11.1. Assume aggregate demand is represented by AD1 and full employment output is $6.0 trillion. The equilibrium level of income is
A. $6.2 billion. B. $6.0 trillion. C. $5.0 trillion. D. $5.8 trillion.