Producing goods can add to net wealth, but rendering services cannot. Explain.
What will be an ideal response?
ANS:
A good can be of greater value when produced than the resources used to produce it. Therefore it adds to our wealth. Since a service is consumed as it is produced, it does not add wealth. It is counted as income, however.
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Show graphically the effect of technological advance on the price of music downloads. In a separate graph, show what happens to the price of CDs as a secondary effect of the new download technology.
What will be an ideal response?
The income effect of a price change refers to
A) the change in demand that occurs when both income and price change. B) the change in demand that occurs when consumer income changes. C) the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. D) the change in the quantity demanded that results from a change in price, making the good more or less expensive relative to other goods, holding everything else constant.
If a trader thinks that the value of yen with respect to the euro is about to fall, which of the following would enable him to make a profit?
A) buy a forward contract for euros B) buy a forward contract for yen C) sell yen in the spot market D) buy euros in the spot market
The accounting identity for the economy's factor payments can be written as ____
a. GDP = wages + interest + rents + profits b. GDP = consumption + investment + government + intermediate goods + net exports c. GDP = wages + interest + rents + net exports d. GDP = wages + interest + rents + saving + investment