Consumers gain from trade within a monopolistically competitive industry because:
a. prices fall and product varieties decrease.
b. prices rise and product varieties increase.
c. prices rise and product varieties decrease.
d. prices fall and product varieties increase.
Ans: d. prices fall and product varieties increase.
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The quantity theory of money and prices
A) is derived from the equation of exchange assuming that prices remain constant. B) shows how a change in the price level leads to a change in the money supply. C) shows how the demand for money is inversely related to the price level. D) is the hypothesis that changes in the money supply leads to proportional changes in the price level.
Unlike Keynesians, neo-Keynesian economists believe that the aggregate supply curve is (drawn from left to right)
a. horizontal b. vertical c. vertical, downward sloping, horizontal d. horizontal, vertical e. horizontal, upward sloping, vertical
If a person's nominal income increases by 10% while the price level increases by 6%, the person's real income:
a. Increases by 4% b. Decreases by 2% c. Increases by 14% d. Increases by 2%
In a market system, how are the price signals established?
A) Consumer advocacy groups establish fair prices for items, and most firms follow these pricing guidelines because they don't want to anger their consumers. B) Industry associations establish an acceptable price range for each commodity sold within the industry, and member firms are obligated to abide by association guidelines. C) The forces underlying supply and demand interact to determine a market clearing price. D) Federal legislation establishes maximum prices for most goods, and state governments regulate the prices of any remaining items.