Which of the following is TRUE regarding markets?
I) Economists define a market as a geographic location where trade occurs.
II) A market enables buyers and sellers to get information about each other and to buy and sell from each other.
III) Markets coordinate decisions through prices.
A) I only
B) I and III
C) II and III
D) I, II and III
C
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Suppose the only two goods you care about in the world are French wine (x) and Cuban cigars (y) and your utility function is given by u(x,y)=xy. You have no income, and the only thing in the world you possess is a large box you have just inherited from your rich uncle who passed away last week (of liver and lung cancer.) You open the box, and much to your liking, you find it contains 9 bottles of fine French wine and 3 boxes of exquisite Cuban cigars. Currently, the wine sells for $1 per bottle, and the cigars sell for $9 per box. Just as you receive the inheritance, you read the headline: "President Lifts Embargo - Price of Cuban Cigars Falls to $4 per Box!" a. Determine the income (or wealth) and substitution effects of a decrease of the price of cigars from 9 to 4. (Assume
fractions of bottles and cigars can be bought.) b. Are cigars a normal or inferior good for you? c. How much would you have been willing to pay the President in order not to lift the embargo? What will be an ideal response?
One of the results of Paul Romer's new growth theory is that investment in research and development will be too low in an economy. Explain how he comes to this conclusion
What will be an ideal response?
Private ownership and property rights in a market system have the following implications, except:
A. Individuals are free to take on the financial risks involved in a business B. Trades that take place in the economy are mutually-agreeable transactions among individuals C. Economic agents are allowed to act in their own self-interest D. Large firms are allowed to coerce other firms and individuals
When a monopolist sells the same product at different prices and the prices are NOT related to cost differences, we have
A) monopoly pricing. B) marginal cost pricing. C) price discrimination. D) price differentiation.