How does a decrease in the price of one good affect a consumer's budget constraint? How is the effect different from a decrease in the consumer's income?
What will be an ideal response?
A decrease in the price of one good causes the budget constraint to pivot rightward along the axis that measures the quantity of the good in question. This is because the consumer's endowment can buy more units of a good when the price falls. The slope of the budget constraint also changes because the opportunity cost changes when the price of a good falls.
In case of a decrease in the consumer's income, the budget constraint shifts to the left. The slope will not change as the opportunity cost does not change with a change in income.
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What are the two ways demand curves can be interpreted?
What will be an ideal response?
Are checkable deposits really money?
A) No, because they are only commercial bank liabilities, not government liabilities. B) No, because they are ultimately only entries in the balance sheets of commercial banks. C) Yes, because they can be converted on demand into currency or coin. D) Yes, because they can be used to make purchases and pay debts.
Use Figure 16.2 above to answer the following question. Assume that MPC represents the marginal private cost and MB is the marginal private benefit for a particular firm
Assume however, that the MDC represents the marginal damage cost of this firm's activity and the MSC is the marginal social cost. How much output would the firm produce if it had to internalize the negative externality.
How much is a bond worth if it pays $20 in coupon payments at the end of each year for 4 years and $1,000 at the end of the fourth year, if the interest rate is 5%?
A) $822.70 B) $893.62 C) $1,070.92 D) $1,080