What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain
What will be an ideal response?
A perfectly elastic demand curve is horizontal and a perfectly inelastic demand curve is vertical. If the demand curve is vertical, then quantity demanded does not change when price changes, or the elasticity equals 0. Quantity demanded is completely unresponsive to changes in price. If the demand curve is horizontal, a tiny increase in price causes quantity demanded to go to zero. As the percentage change in price approaches zero, elasticity of demand approaches infinity. Quantity demanded is extremely responsive to even very small changes in price.
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Your friend Tony opened a pizzeria. You helped him to advertise his pizza, which is in fact the best pizza in town. As a result, the demand for Tony's pizza increases and your friend, noticing lines of customers, raises the price of his pizza
But then he fears that the higher price will cause demand to decline, which will cause the price to drop. Is Tony right in his analysis of the situation? Explain.
Adverse selection refers to a situation in which
a. employers have more information about a job's salary than the job candidate does b. a job candidate has more information about the job's salary than the employer does c. employers have more information about a job candidate's abilities than the candidate does d. a job candidate has more information about her abilities than the employer does e. only below-average job candidates apply for a job
Which of the following could effectively destroy a monopoly structure?
a. the appearance of just one close substitute good b. its exclusive access to resources c. its patent on a new technology d. a government restriction on entry e. a merger of two once-competing firms
If the price of inputs rises and consumer expectations about future economic activity worsens:
a. Price index rises, and the change in real GDP is uncertain. b. Price index falls, and real GDP rises. c. The change in price index is uncertain, and real GDP rises. d. The change in price index is uncertain, and real GDP falls. e. Price index falls, and the change in real GDP is uncertain.