Why are total expenditures on a good maximized at the point on the demand curve where the price elasticity of demand equals -1? Explain your answer using the appropriate algebra.
What will be an ideal response?
When total expenditures are maximized, neither an increase of decrease in price will increase expenditures. This is only true when E = -1. The formula for price elasticity of demand is E = (%?Q)/(%?P). If E > -1 (that is, if demand is elastic) then (%?Q) > (%?P). This is implies that a relatively small decrease in price will increase sales by a relatively larger amount, so total expenditures on the good will increase. If E < -1 (that is, if demand is inelastic) then (%?Q) < (%?P). This is implies that a relatively large increase in price will decrease sales by a relatively smaller amount, so total expenditures on the good will increase. Thus, when E > -1, total expenditures can be increased by lowering the price of the good.
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Discuss why saving and investing entails risk. What is the reward for bearing risk? Explain how income taxes affect the returns to risk bearing and its impact on overall risk taking and innovation
What will be an ideal response?
A corporation has sold 1,000 shares of stock at a value of $100 each. Bob is a stockholder. If the corporation fails and has $3 million dollars of debt and only $500,000 in assets, what is the most Bob can lose if Bob owns 25 shares of stock?
a. $100 b. $250 c. $1,000 d. $2,500 e. 0
In the Keynesian transmission mechanism, if investment is completely interest-insensitive, then an increase in the money supply will
A) cause total expenditures and aggregate demand to increase. B) cause total expenditures and aggregate demand to decrease. C) have no impact on total expenditures and aggregate demand. D) cause total expenditures to increase and aggregate demand to decrease. E) cause total expenditures to decrease and aggregate demand to increase.
In the short run, tax cuts that are intended to increase aggregate supply have
A. almost no effect on aggregate demand, and a small effect on aggregate supply. B. about an equal effect on both aggregate demand and aggregate supply. C. a much greater effect on aggregate demand than on aggregate supply. D. almost no effect on aggregate supply, and a negative effect on aggregate demand.