A question on an economics exam asks: What happens in the market for margarine when income rises? Allison, an excellent student, shows the demand for margarine decreasing. Is she necessarily wrong? Why or why not?
If we consider Allison's answer wrong, we are implicitly assuming that margarine is a normal good and that the demand for margarine should decrease. But suppose Allison believes that margarine is an inferior good. In this case, her answer is correct. Good exam writers need to make explicit what they want students to assume.
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The dollar price of a good relative to the average dollar price of all other goods and services is the good's:
A. nominal price B. equilibrium price C. market price D. real price
Which of the following is not considered a factor of production?
A) money B) capital C) land D) entrepreneurial ideas E) labor
The law of increasing costs indicates that the opportunity cost of producing a good:
a. is proportional to the production of the good. b. is constant to the production of the good. c. increases as more of the good is produced. d. decreases as more of the good is produced. e. increases as less of the good is produced.
Suppose a recent college graduate has an annual nominal income of $42,000 for the first year she works. If the annual inflation rate is 5 percent, what salary would she need in the second year to maintain the same real income?
a) $39,900 b) $42,500 c) $44,100 d) $42,000