Refer to Figure 5-4. Suppose the point labeled B is the “halfway point” on the demand curve and it corresponds to a price of $5.00. Then, between prices of $4.99 and $5.01, the price elasticity of demand is
a. less than 1 but greater than zero.
b. equal to 1.
c. greater than 1.
d. equal to zero.
e. equal to infinity.
Answer: b. equal to 1.
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Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?
A) Firm produces less than optimal quantity and earns lower profits B) Firm produces less than optimal quantity and earns higher profits C) Firm produces more than optimal quantity and earns lower profits D) Firm produces more than optimal quantity and earns higher profits
If the U.S. government were to relax its restrictions on offshore oil well drilling and open drilling in Alaskan national parks, the result to aggregate supply would be to
A) cause a shift in the SRAS to the left. B) cause a shift in the LRAS to the left. C) cause no long-term shifts in AS. D) cause a shift in both LRAS and SRAS to the right.
Each of the following is a determinant of demand except a. tastes
b. production technology. c. expectations. d. the prices of related goods.
The definition of poverty that is based on percentage of median income recognizes that
a. poverty is a relative concept b. poverty has an important cultural component that goes beyond relationships between individual incomes c. there is a vicious circle of poverty that keeps the poor locked in poverty d. poverty is about real people e. income is a sufficient measure of economic well-being