Suppose the equilibrium price of textbooks is $40 a textbook. At that price, the quantity of textbooks demanded and supplied is 20,000. If a $5 tax per textbook paid by consumers increases the price paid by consumers to $42 a textbook and reduces the equilibrium quantity sold to 18,000, elasticity of:
A. supply is 1.3 and elasticity of demand is 2.0. Suppliers pay a larger portion of the tax.
B. demand is 0.7 and elasticity of supply is 0.5. Consumers pay a smaller portion of the tax.
C. supply is 0.7 and elasticity of demand is 0.5. Suppliers pay a smaller portion of the tax.
D. demand is 1.3 and elasticity of supply is 2.0. Consumers pay a larger portion of the tax.
Answer: A
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
The overall trend in resource prices has been
a. upward. b. downward. c. constant. d. increasing exponentially.
When quantity supplied equals quantity demanded, there is:
A. disequilibrium. B. excess quantity supplied. C. a market-clearing price (equilibrium price). D. excess quantity demanded.
If a natural disaster were to cause a negative long-run supply shock to the economy, once the economy adjusts, the new equilibrium will be at a:
A. higher price level and lower level of output. B. lower price level and lower level of output. C. higher price level and higher level of output. D. lower price level and higher level of output.