Starting from long-run equilibrium, a large tax increase will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. recessionary; lower; potential
B. expansionary; lower; potential
C. expansionary; higher; potential
D. recessionary; lower; lower
Answer: A
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Demand is elastic if
A) consumers respond strongly to changes in the product's price. B) a large percentage change in price brings about a small percentage change in quantity demanded. C) a small percentage change in price brings about a small percentage change in quantity demanded. D) the quantity demanded is not responsive to price changes. E) the demand curve is vertical.
In the long run, a firm in monopolistic competition will
A) make a negative economic profit, that is, an economic loss. B) make zero economic profit, that is, a normal profit. C) make a positive economic profit. D) None of the above answers is necessarily correct because the amount of the profit or loss depends on the slope of the demand curve.
In many cities, the market for cab services is monopolized. This monopoly arises because:
a. of economies of scale. b. of government restrictions on the entry of new firms. c. there is a limited space on the streets for taxis. d. it protects the consumers from unscrupulous drivers. e. of high fixed costs of entering the business.
Monopolistic competition describes a situation where: a. a few firms produce a standardized product
b. a large number of firms produce differentiated products. c. a few firms produce differentiated products. d. there are substantial barriers to entry.