Matt has studied the personal computer market in his town and has examined his sales history. He believes an additional computer could be sold in the community for each reduction in price of $1. He also believes that at $2,500 the last customer in town would do without a computer. How would you represent algebraically the demand function for computers in the town?
Answer: Since no one buys at $2,500 the vertical intercept is $2,500. The slope is - 1 because for every dollar drop in price the market would sell one more. Therefore the horizontal intercept is also 2,500. Accordingly the demand is P = 2500 - Q.
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Once an equilibrium is achieved, it can persist indefinitely because
A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price.
Which of the following best explains why a firm in a perfectly competitive market must take the price determined in the market?
a. The short-run average total costs of firms that are price takers will be constant. b. If a price taker increased its price, consumers would buy from other suppliers. c. Firms in a price-taker market will have to advertise in order to increase sales. d. There are no good substitutes for the product supplied by a firm that is a price taker.
Suppose that the central bank must follow a rule that requires it to increase the money supply when the price level falls and decrease the money supply when the price level rises. If the economy starts from long-run equilibrium and aggregate supply shifts left, the central bank must
a. decrease the money supply so interest rates rise. b. decrease the money supply so interest rates fall. c. increase the money supply so interest rates rise. d. increase the money supply so interest rates fall.
What did Malthus believe would be the ultimate result of population growth?
a. technological innovation and a higher standard of living b. rapidly fluctuating economic growth c. positive per capita economic growth d. wages that were at a subsistence level