Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs of producing CDs increase. What will happen in the market for CDs?
What will be an ideal response?
Since stereo equipment is a complementary good to CDs, a decrease in the price of stereo equipment causes the demand for CDs to increase. The increase in labor costs causes the supply of CDs to decrease. The price of CDs will increase, but the quantity sold in the market could increase, decrease, or remain the same. The quantity effect depends on how much demand increased relative to how much supply decreased.
You might also like to view...
Which one of the following could cause a recessionary gap?
A. Interest rates are too low. B. Consumers spend more than they earn. C. Price levels are too high. D. Businesses spend more than they save.
The ability to use the too-big-to-fail policy was curtailed by the passage of the FDICIA
To use this action today, the FDIC must get approval of a two-thirds majority of both the Board of Governors of the Federal Reserve and the directors of the FDIC and also the approval of the A) Secretary of the Treasury. B) Senate Finance Committee Chairperson. C) President of the United States. D) governor of the state in which the failed bank is located.
Great Benefit is a health insurance company with two types of customers: healthy persons and sickly persons. A healthy person has 1-to-5 odds of getting ill, and a sickly person has 1-to-1 odds of getting ill. However, the insurance company cannot distinguish between healthy and sickly persons. Brett is a risk-averse person who purchases health insurance from Great Benefit. Without insurance, Brett's income will be $8,000 if he remains healthy and $2,000 if he becomes ill. Brett's situation is diagrammed below.
(i) Is Brett a healthy person or a sickly person? How can you tell?
(ii) Suppose Great Benefit offers two policies-one at fair odds for healthy persons and one at fair odds for sickly persons-that can be purchased in unlimited quantities. What type of policy and how much insurance will Brett choose to purchase?
(iii) What type of information problem does the insurance company face? What limit should the insurance company place on insurance at "healthy" odds to deal with this problem?
The demand for labor by a certain firm is independent of the demand for that firm's product
a. True b. False Indicate whether the statement is true or false