If I use 1,000 gallons of water a month at a price of $.01 a gallon, is my consumer’s surplus likely to be large or small? Explain.
What will be an ideal response?
The 1,000th gallon will yield no consumer’s surplus, since MU = P is the decision rule for optimal purchases. But since MU declines, all gallons preceding the 1,000th gallon will yield CS. The first gallons will have particularly high CS, since if I had to forgo any drinking water, water for showers, and water to keep my plants alive, I would lose a lot of utility. In sum, CS is likely to be large.
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Refer to the scenario above. The total value in your account, at the end of a year, is equal to:
A) $520. B) $525. C) $550.50. D) $572.
The rate at which a firm is able to substitute one input for another while keeping the level of output constant is called the
A) marginal rate of technical substitution. B) isoquant substitution rate. C) opportunity cost of inputs. D) input trade-off rate.
Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean
A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.
Consider the impact of an increase in labor-enhancing technology within the classical model. Provide graphs to illustrate what happens to real wages, labor, output, and the price level
What will be an ideal response?