When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes:
A. an inferior good.
B. the rationing function of prices.
C. the substitution effect.
D. the income effect.
Answer: C
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If a non-renewable resource is scarce, has constant marginal cost of production and is sold in a competitive market,
A) its price will increase over time. B) its price will exceed marginal cost. C) its price will increase by the rate of interest. D) All of the above.
A manager can determine if her product is viewed as a normal good or an inferior good by considering
A) price elasticity. B) cross elasticity. C) income elasticity. D) advertising elasticity.
In order to minimize the net cost of pollution reduction, the level of pollution reduction (the amount of a pollutant not released into the environment) should be the level at which
A. the total cost of reducing pollution is minimized and the total benefits of reducing pollution are maximized. B. the marginal benefit of reducing pollution equals the marginal cost of reducing pollution. C. the total benefit of reducing pollution equals the total cost of reducing pollution. D. the marginal benefit of reducing pollution exceeds the marginal cost of reducing pollution by the greatest possible amount.
In which of the following situations would each of the members be responsible for producing an equal share of the total amount of output sold by the cartel engaged in joint profit maximization?
A) When the amount of revenue generated by each member of the cartel is the same. B) When there are no economies of scale in production. C) When each member of the cartel is using the same scale of production. D) When marginal costs of production are the same for each of the members of the cartel.