By what mechanism does the economy always return to full employment after a demand shock in the short run?
a. Wages automatically adjust themselves.
b. The interest rate automatically adjusts itself.
c. Prices automatically adjust themselves.
d. Taxes automatically adjust themselves.
e. Rents automatically adjust themselves.
A
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When a price ceiling is set below the equilibrium price,
a. the quantity demanded will exceed quantity supplied. b. the quantity supplied will exceed the quantity demanded. c. the quantity supplied will equal the quantity demanded. d. the equilibrium price will fall.
If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be
a. of unitary elasticity. b. relatively inelastic. c. relatively elastic. d. perfectly elastic.
The substitution bias refers to:
A. the failure of the Lespeyres index to capture a consumer's tendency to purchase the same bundle of goods as prices change. B. the substitution effect is positive for a price increase. C. the substitution effect is negative for an inferior good. D. the failure of the Lespeyres index to capture a consumer's tendency to substitute away from goods that have become more expensive.
In which of the following cases does an import quota result in a higher welfare loss than a tariff?
A. The quota licenses are allocated through resource-using application procedures. B. The government auctions the import licenses to the highest bidders. C. The domestic industry in the importing country is highly competitive. D. The domestic firms producing an import-competing product set the product's price equal to the marginal cost of producing it.