As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to
a. overstate the impact of higher prices on consumers.
b. consistently underestimate the true inflation rate.
c. omit the benefits of product quality improvements.
d. have larger fluctuations than other price indexes.
A
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Suppose that people decide riding scooters is no longer fun. The equilibrium price of a scooter ________, and the equilibrium quantity of scooters ________
A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases E) does not change; decreases
What is the law of diminishing returns? Why is this proposition called a "law"?
What will be an ideal response?
The forward contract differs from a futures contract in that:
a. the forward contract is to be settled immediately. b. the futures contract specifies a fixed amount and arranged date, whereas the forward contract can be for any amount or date. c. the futures contract cannot be traded in a market, whereas the forward contract can be bought in the market. d. forward contracts are standardized, whereas futures contracts are not standardized.
Which circumstance is most likely to cause a farmer to store soybeans for future sale instead of selling them right after harvest?
(A) Inflation is running at 25 percent. (B) The government lifts restrictions on the importation of soybeans. (C) A new technology decreases the chance of rot. (D) The government imposes an excise tax effective next year.