Provide a simple definition of the price elasticity of demand and explain why knowing the price elasticity for her product is useful to the firm's manager
What will be an ideal response?
The price elasticity of demand is a measure of the sensitivity of quantity demanded to a change in price. To be specific, it is calculated as the percentage change in quantity demanded divided by the percentage change in price. Knowing the price elasticity of demand is very useful to managers because it allows them to predict whether a specific change in the price of a product will cause total revenues to increase, decrease, or stay the same.
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A possible reason a nation might impose a protectionist policy such as a tariff is to
A) encourage specialization in the good in which the nation has a comparative advantage. B) protect an infant industry from foreign competitors. C) increase the level of imports. D) slow domestic production.
Consider the following situation: your math professor tells your class that the mean score on the final exam is 43 . The exam was scored on a total of 100 points. Does this imply that you, too, scored poorly on the exam?
What will be an ideal response?
The Friedman—Phelps analysis suggests that there is a long-term relationship between
A) inflation and unemployment. B) cyclical inflation and structural unemployment. C) unanticipated inflation and cyclical unemployment. D) anticipated inflation and structural unemployment.
The arguments against the use of active stabilization policy include all of the following except:
a. the responsiveness of voluntary unemployment to changes in GDP. b. the existence of policy lags. c. weak macroeconomic forecasting abilities. d. the possibility of policy errors because of limited information.