As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to
What will be an ideal response?
overstate the impact of higher prices on consumers
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When a market is not in equilibrium:
A. a change in either supply or demand is required to reestablish equilibrium. B. there is neither excess supply nor excess demand. C. the economic motives of sellers and buyers will move the market to its equilibrium. D. government intervention is required to achieve equilibrium.
On any given day, a salesman can earn $0 with a 20% probability, $100 with a 40% probability, or $300 with a 20% probability. His expected earnings equal
A) $0. B) $100 because that is the most likely outcome. C) $100 because that is what he will earn on average. D) $200 because that is what he will earn on average.
Suppose Bev's Bags makes two kinds of handbags-large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. If Bev were to produce no bags, which of the following is true regarding Bev's costs?
A. The variable cost of fabric would drop to zero. B. The fixed cost of thread would stay the same. C. The variable cost of cutting shears would drop to zero. D. All of these are true.
Output regulation is likely to result in
A. Profit maximization for the monopolist. B. A surplus of the product. C. An increase in the cost of subsidies. D. A decline in the quality of the product.