Assume a distant tribe only harvests breadfruit and its entire livelihood depends on it. If the price of breadfruit were to rise suddenly how might it be possible that this tribe would actually consume more breadfruit?
What will be an ideal response?
The substitution effect would cause a decline in the consumption of bread fruit ceteris paribus. However, because breadfruit is the principle means by which the tribe earns its income there is also an income effect. If breadfruit is a normal good and the income effect is strong enough it can outweigh the substitution effect.
You might also like to view...
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate
A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
If the inflation rate target is 2%, the current inflation rate is 3%, and the output gap is 2%, then according to the Taylor rule, the nominal federal funds rate should be ________ percent
A) 4.5 B) 7 C) 6.5 D) 5.5 E) none of the above
A merger between McDonald's and Burger King would be called a(n)
a. horizontal merger b. vertical merger c. conglomerate merger d. cartel e. illustration of game theory
(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + .75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is:
A. 3. B. 4. C. 5. D. 10.