State the law of demand and illustrate it. Explain what is meant by the term "price" in the law of demand
What will be an ideal response?
The law of demand states that when the price of a good increases, people buy less of the good, other things equal, and when price of a good decreases, people buy more of it. An increase in the price of gasoline would lead people to buy less gasoline. Price means "relative price," or the price of the good in terms of other goods. People make their decisions on the basis of relative prices and not on the basis of the money price.
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At one time, sea lions were depleting the stock of steelhead trout. One idea to scare sea lions away from the Washington coast was to launch fake killer whales, which are predators of sea lions. The cost of making the first whale is $16,000 ($5,000 for materials and $11,000 for the mold). The mold can be reused to make additional whales, and so additional whales cost $5,000 each. Based on these numbers, the average total cost of making five fake killer whales would be:
A. $11,000. B. $36,000. C. $7,200. D. $5,000.
The idea in economics that "there is no free lunch" means that:
A. Businesses would go bankrupt if they offered free lunches B. The thought of a free lunch is often better than the reality of consuming it C. There are opportunity costs involved even in free lunches D. Free lunches used by businesses to attract customers is an inefficient marketing ploy
The shape of the firm's marginal revenue curve depends ultimately on whether the firm is
A. a revenue maximizer or a profit maximizer. B. owned by a man or a woman. C. a monopolist or a perfect competitor. D. a market share maximizer or a sales maximizer.
A vertical line showing an economy's potential output is called the ________, while a horizontal line showing the current rate of inflation is called the ________.
A. long-run aggregate supply; aggregate demand B. long-run aggregate supply; short-run aggregate supply C. short-run aggregate supply; aggregate demand D. short-run aggregate supply; long-run aggregate supply