Why is it customary to report price elasticity of demand in absolute value terms while cross elasticities and income elasticities are reported with their sign attached?
What will be an ideal response?
Price elasticity of demand is always negative since the law of demand says that an increase in price will reduce quantity demanded. It is simpler to use the absolute value, recognizing that the true sign is always negative. Cross elasticities and income elasticities can be positive or negative, with the signs giving information. A positive cross elasticity indicates that as the price of product Y increases, purchases of X increase, so the two goods are substitutes. Income elasticities are typically positive, as increased income leads to a greater quantity purchased, but the opposite does occasionally happen for inferior goods such as Spam.
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One factor contributing to the decline in cost advantages that banks once had is the
A) decline in the importance of checkable deposits from over 60 percent of banks' liabilities to 2 percent today. B) decline in the importance of savings deposits from over 60 percent of banks' liabilities to under 15 percent today. C) decline in the importance of checkable deposits from over 40 percent of banks' liabilities to 15 percent today. D) decline in the importance of savings deposits from over 40 percent of banks' liabilities to under 20 percent today.
If M stand for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is MV = PQ
a. True b. False Indicate whether the statement is true or false
Some reasons that firms may experience diseconomies of scale include
a. the firm is too small to take advantage of specialization b. large management structures may be bureaucratic and inefficient c. if there are too many employees, the work place becomes crowded and people become less productive d. having more employees doesn't mean there will be more raw materials to use in production e. average fixed costs begin to rise again
Given the following Taylor rule:Target federal funds rate = natural rate of interest + current inflation + 2x(inflation gap) + x(output gap);What do the coefficients on the inflation and output gaps (2x, x) reveal?
What will be an ideal response?