A firm will employ more of an input whose relative price has fallen and, conversely, will use less of an input whose relative price has risen. Thus, a fall in the price of capital will increase the relative price of labor and thereby reduce the demand
for labor. This describes the:
A. output effect.
B. substitution effect.
C. idea of derived demand.
D. law of diminishing returns.
Answer: B
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Use the following graph to answer the next question.
Which of the following factors will shift AD1 to AD2?
A. An increase in national incomes abroad. B. An increase in real interest rates. C. A decrease in the value of financial assets. D. A decrease in the general price level.
If two firms in an oligopoly produce undifferentiated products and face identical constant marginal costs, then, absent any implicit or explicit collusion, they will price at marginal cost regardless of whether they move sequentially or simultaneously -- assuming price is the strategic variable.
Answer the following statement true (T) or false (F)
If the law of demand holds, then
A. the demand curve has a negative slope. B. the demand curve has a positive slope. C. the demand curve shifts whenever the price changes. D. the diminishing marginal utility is not valid.
In a perfectly competitive market, technological advances bring ________ economic profits for producers and ________ lower prices for consumers
A) permanent; permanently B) permanent; temporarily C) temporary; permanently D) temporary; temporarily