Differentiate between the following
a) Normal goods and inferior goods
b) Substitutes and complements
a) A normal good is a good whose consumption increases with an increase in the consumer's income. Hence, it has a positive income elasticity of demand. The consumption of an inferior good decreases with an increase in the consumer's income. Hence, inferior goods have a negative income elasticity of demand.
b) Two goods are said to be substitutes when an increase in the price of one good leads to an increase in the demand for the other good. Hence, substitute goods have a positive cross-price elasticity of demand. Two goods are said to be complements if an increase in the price of one good leads to a fall in the demand for the other good. Hence, complement goods have a negative cross-price elasticity of demand.
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A situation in which the unregulated competitive market outcome is inefficient because prices fail to provide proper signals to buyers and sellers is known as:
A) an imperfectly competitive market. B) a market failure. C) a deadweight loss. D) a disequilibrium.
Budget maximization by bureaus leads to
a. efficient budgets b. budgets greater than those desired by median voters c. budgets less than those desired by median voters d. budgets equal to those desired by median voters e. budgets less than those desired by the majority of voters
When government expenditures exceed government revenues a budget surplus will exist
Indicate whether the statement is true or false
A pharmaceutical company hired two analysts to independently calculate the elasticity of supply of its product. According to Analyst A, the price elasticity of supply for the company is 0.36, and according to Analyst B, the price elasticity of supply is 0.88 . Assuming that neither analyst has made a mistake in calculations, it can be concluded that: a. Analyst A studied the data for a longer
period of time than Analyst B. b. Analyst A studied the data for a shorter period of time than Analyst B. c. the data provided by the company had variations in it. d. the average of the two values can provide the accurate price elasticity of supply.