Will a binding price floor result in a shortage or a surplus in the market?
A binding price floor will result in a surplus in the market.
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Spacely Sprockets, Inc, usually pays $1,000 for a million flanges, which it uses as inputs in the manufacture of sprockets. It also spends an average of $20 per million flanges on finding manufacturers and negotiating contracts. Spacely is capable of making its own flanges at a cost of $980 per million. Given these costs,
a. Spacely should continue to contract out for flanges b. Spacely should start to manufacture its own flanges c. it's not possible to say what Spacely should do d. Spacely should stop paying the additional $20 to find and negotiate contracts and just buy the flanges outright for $1,000 per million e. Spacely should move away from the use of flanges and toward an input that it can produce by itself
When the housing bubble popped, the effect of the negative demand side shock and the negative supply side shock were the same on:
A. output, causing it to definitely decrease. B. output, causing it to definitely increase. C. prices, causing them to definitely rise. D. prices, causing them to definitely fall.
In the market for insurance, the adverse selection problem arises because
a. fair odds are different for different people, and the insurance company cannot tell who is who. b. people tend to behave more recklessly when they are insured. c. some events simultaneously affect a large number of people. d. insurance companies must tilt the odds in their favor to cover their basic operating costs.
If the value of the domestic currency depreciates:
a. Aggregate demand falls and aggregate supply rises. b. Aggregate demand rises and aggregate supply rises. c. Aggregate demand rises and aggregate supply falls. d. Neither aggregate demand nor aggregate supply change. e. None of the above.