Ali's Gyros operates near a college campus. Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut. He estimates that he would be able to sell 200 gyros per day at $3.50 each
a. Calculate the price elasticity of demand using the midpoint formula.
b. Calculate the change in revenue as a result of the price cut.
What will be an ideal response?
a. Price elasticity of demand = (120 - 200 ) / [(200 + 120 ) / 2] / (4.50 - 3.50 ) / 3.50 + 4.50 ) / 2] = (-80 / 160 ) / (1 / 4 ) = -2
b. Change in revenue = $700 - $540 = $160
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Refer to Budget Lines. If the consumer purchased basket B last year and purchases basket C this year, we can conclude that
a. the consumer is not behaving optimally.
b. the consumer's tastes changed between this year and last year.
c. the consumer's indifference curves cannot be convex.
d. the law of demand does not hold for this consumer.
The cyclically adjusted budget is calculated at potential GDP
Indicate whether the statement is true or false
For a perfectly competitive firm with a known marginal cost and random demand, as the expected marginal revenue increases, the profit-maximizing quantity ________.
A) approaches zero B) increases C) does not change D) decreases
Assuming the free flow of capital across borders, which of the following statements is most correct?
A. A central bank cannot have both a fixed exchange rate and an independent inflation policy. B. The central banks of most industrialized countries focus on fixed exchange rates. C. While most central banks of industrialized countries favor fixing exchange rates, their primary concern is on domestic inflation. D. A central bank can have both a fixed exchange rate and an independent inflation policy.