Consider an economy with only two goods: bread and wine. In 1982, the typical family bought 4 loaves of bread at 50¢ per loaf and 2 bottles of wine for $9 per bottle. In Year X, bread cost 75¢ per loaf and wine cost $10 per bottle. The CPI for Year X (using a 1982 base year) is:
A. 100.
B. 115.
C. 126.
D. 130.
Answer: B
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When calculating the price elasticity of demand, which of the following conditions must be satisfied?
A) All other factors that influence demand must be held constant. B) Prices of related goods must be held constant but all other factors must be allowed to vary. C) Prices of related goods must be allowed to vary but all other factors must be held constant. D) All other factors than influence demand must be allowed to vary.
In general, the income effect of an increase in the price of a normal good:
A. will cause the individual to buy more of that good because they have relatively more income. B. will cause the individual to buy less of that good because they have relatively less income. C. will cause the individual to buy more of that good because they have relatively less income. D. will cause the individual to buy less of that good because they have relatively more income.
If income doubles and the prices of all goods remain the same, the budget line will shift outward by 50 percent along each axis
a. True b. False
An increase in the quantity demanded of a good is most often due to
a. current prices b. higher prices c. higher income d. lower prices e. technological change