The use of theory and observation is more difficult in economics than in sciences such as physics due to the difficulty in
a. performing an experiment in an economic system.
b. applying mathematical methods to economic analysis.
c. analyzing available data.
d. formulating theories about economic events.
a
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Jim Range has to choose between buying more soda or more pasta for the week. He has a fixed income and he knows the prices of both products. Using indifference curves and budget constraints, illustrate the amount of soda and pasta that Jim will purchase. When he gets to the store, he finds that the price of soda has fallen dramatically. How does this change his optimal purchase? Can a general rule of human behavior be developed from this graphical example?
What will be an ideal response?
Two members of the Kenyan parliament from coffee-growing areas said that no firm should have a monopoly to market Kenyan coffee. The retail coffee company Tetu Coffee has sparked a storm in the industry by promising to earn the country Sh400 (Kenyan Shilling) billion annually if given exclusive licenses to market Kenyan coffee. The members of parliament said the coffee bean farmers should be free to sell their beans to the highest bidder. What would create a market with one buyer in the situation described?
A. Tetu Coffee has the ability to outcompete other coffee buyers. B. The government prohibits other buyers. C. There are economies of scope. D. There are economies of scale in purchasing coffee.
Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 2 percent, an initial deposit of $500 will lead to a total increase in deposits of:
A. $250. B. $5,000. C. $25,000. D. $50,000.
Suppose the firm's cost of capital increases. This would not change the capital budgeting choices the firm makes if it uses
A. Payback B. NPV analysis C. IRR analysis