What two conditions must hold for a competitive market to produce efficient outcomes?
A. Demand curves must reflect all costs of production, and supply curves must reflect
consumers' full willingness to pay.
B. Supply curves must reflect all costs of production, and demand curves must reflect
consumers' full willingness to pay.
C. Firms must minimize production costs, and consumers must minimize total expenditures.
D. Firms must maximize profits, and consumers must all pay prices equal to their maximum
willingness to pay.
Answer: B
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Income elasticity of demand is defined as
A) the change in income divided by the change in quantity. B) the change in price divided by the change in income. C) the percentage change in demand divided by the percentage change in income. D) the change in income multiplied by the change in quantity.
An economic benefit of contracts is that they
a. protect property rights b. encourage involuntary exchanges c. reduce the number of possible Pareto improvements d. encourage market concentration e. encourage specialization
Use the following graph to answer the next question.
In the graph, Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money. The market is initially in equilibrium at a 6% rate of interest. If the supply of money increases as shown, then the asset demand for money will increase by
A. $75. B. $325. C. $125. D. $200.
At the beginning of 2018, Joey planned to buy a new iPhone, LCD TV, and motorcycle by borrowing money. Joey already owes $25,000 on other loans. He also planned to buy new clothing and DVDs out of current income. An increase in interest rates, during 2018, will most likely
A. cause Joey to decide to borrow more money, but not change what he planned to spend on goods purchased with current income. B. cause Joey to decide to borrow less money and to spend less on goods purchased with current income. C. cause Joey to decide to borrow less money, but not change what he planned to spend on goods purchased with current income. D. cause Joey to decide to borrow more money and to spend more on goods purchased with current income.