Explain how the market demand curve can be derived. Does the law of demand apply to the market demand curve?
What will be an ideal response?
The market demand curve for a good can be found by summing the quantities demanded by all of the households buying in the market for that good. Since all individuals' demand curves are downward sloping (due to the law of demand), the market demand curve will also be downward sloping. Therefore, the law of demand does apply to the market demand curve as well.
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Describe the relationship illustrated by the Laffer curve
What will be an ideal response?
Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 40 units of clothing but no food. Suppose each has the utility function U = F ? C. The price of clothing is always $1
What is the competitive equilibrium price for food? A) $5 B) $4 C) $3 D) $2
The intercept of a budget line measures the
a. amount of a good that a consumer will purchase b. maximum amount of a good that a consumer could purchase, given his consumption of some other good c. maximum amount of a good that could be consumed at given prices and income d. minimum amount of a good that could be consumed at given prices and income e. minimum consumption of a good consistent with utility maximization
When quantity supplied exceeds quantity demanded at the current market price, the market has a surplus, and market price will likely rise in the future to eliminate the surplus
a. True b. False Indicate whether the statement is true or false