How does the cross elasticity of demand differ from the price elasticity of demand? How are they related?
What will be an ideal response?
The cross elasticity of demand is the responsiveness of demand for one good to a percentage change in the price of another good. Instead of looking at the effect of the change in the good itself, we look at the effect on the amount demanded of another good. If the goods are substitutes, the cross elasticity of demand is positive, but the cross price elasticity of demand is negative when they are complements. A high positive cross elasticity of demand means the goods are close substitutes, which implies the price elasticity of demand will be relatively elastic because elasticity is a function of the closeness of substitutes.
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The primary function of the Export-Import Bank is to assist in
a. guaranteeing markets for U.S. importers. b. financing exports from the United States. c. providing foreign currency to U.S. banking institutions. d. reducing tariff rates between trading nations.
In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?
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A. It creates money to pay for the securities by adding the purchase amount to the banks’ reserves. B. It pays for the securities with new Federal Reserve notes. C. It borrows the necessary funds from the Treasury. D. It auctions off part of the securities it already owns.
Assume a given amount of output can be produced by several small plants or one large plant with identical minimum per-unit costs. This long-run situation reflects the existence of
A. Diminishing returns. B. Constant returns to scale. C. Economies of scale. D. Diseconomies of scale.