Why would a firm choose a lesser known celebrity in its advertising when more famous celebrities are available?
What will be an ideal response?
Firms will choose a lesser known celebrity because the more famous celebrities are also more expensive. The firm will choose the celebrity based on the additional profits the celebrity endorsement can generate compared to the cost of the celebrity endorser. If the cost of a famous endorser exceeds the additional profits that the endorsement will generate, then firms may choose a lesser known endorser.
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Explain why environmental damage would be classified as an externality.
What will be an ideal response?
If your bank pays you 6% interest on a savings account and inflation is 2%, your approximate real rate of interest is
A) 2%. B) 4%. C) 8%. D) 12%.
A sudden increase in immigration would be considered a(n):
A. short-run supply shock. B. long-run supply shock. C. interest-rate shock. D. A change in immigration would not affect any of these.
An industry is said to be a natural monopoly when:
A. legal barriers limit entry into the market. B. diseconomies of scale are present in the market. C. the market demand for the product supplied by a firm is inelastic. D. long-run average cost continues to decline as the quantity of output increases.