Suppose bad weather decreases the wheat harvest by 12 percent. If the price elasticity of demand for wheat is 0.6, how would the crop failure affect the price of wheat? Would the crop failure benefit or harm wheat farmers?
What will be an ideal response?
When the price elasticity of demand is 0.6, a 12 percent decrease in quantity brings about a 20 percent increase in the price. Wheat farmers' total revenue increases because the demand is inelastic. So, taken as a group, wheat farmers' total revenue increases. However, the benefit is distributed unequally. Those farmers whose crop was destroyed because of the bad weather are harmed, whereas those farmers whose crop was spared the bad weather benefited.
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According to the household liquidity effect, higher stock prices lead to increased consumption expenditures because consumers
A) feel more secure about their financial position. B) want to sell stocks and spend the proceeds before stock prices fall. C) believe that their wages will increase due to increased profitability of firms. D) can now afford more expensive imports.
We would expect, all else equal, that:
A. taxes would have no effect on unemployment. B. taxes would be negatively related to unemployment. C. lower taxes would reduce unemployment. D. higher taxes would reduce unemployment.
Members of the Board of Governors of the Federal Reserve serve one _____ year term.
Fill in the blank(s) with the appropriate word(s).
A small, one-unit change in value is called a marginal change.
Answer the following statement true (T) or false (F)