What is a market surplus, and how does the market attempt to resolve a surplus?
What will be an ideal response?
At a price higher than equilibrium, a surplus will occur. There will be pressure on sellers to lower prices to sell merchandise. For example, when a merchant must sell holiday gift wrap at a low price after the holiday, it means that the price was too high immediately after the holiday and this caused an after-holiday surplus. As the price falls, more consumers are willing to buy the item, and fewer sellers are willing to sell the item. The price keeps falling until quantity supplied equals quantity demanded.
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At the beginning of the year, AAA-1 Towing owns trucks and buildings for a total value of $1 million. During the year, it invests $250,000 to replace towing trucks worth $230,000 destroyed in a flood and to cover $50,000 worth of depreciation
AAA-1 Towing's net investment was A) $20,000. B) $250,000. C) -$30,000. D) $200,000. E) $280,000.
Which type of investor is most likely to have a diversified portfolio?
A) risk averse B) risk loving C) risk neutral D) risk tolerant
Suppose the auto industry has several investment projects with an expected rate of return of 15 percent, the aluminum industry has projects with an expected return of over 20 percent,
the publishing industry projects with an expected return of 10 percent, the steel industry has projects with an expected return of 7 percent and the rubber industry projects with an expected return of 5 percent. The current market rate of interest is 7 percent. A reduction in the supply of funds causes interest rates to rise to 11 percent. The effect is to A) cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate. B) cause the firms in the steel and the rubber industries to go ahead with their projects. C) force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means. D) make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments.
If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:
A. elastic. B. inelastic. C. perfectly inelastic. D. perfectly elastic.