A Consumer Price Index (CPI) adjustment overcompensates for inflation because it ignores
A) the income effect when relative prices change.
B) the substitution effect when relative prices change.
C) that some goods are inferior.
D) that the substitution effect may offset the income effect.
B
You might also like to view...
Firms in oligopoly can achieve an economic profit
A) always in the long run. B) if they cooperate. C) only if the demand for their products is inelastic. D) only if the demand for their products is elastic. E) if they reach the non-cooperative equilibrium.
If we assume perfect information, perfect mobility of resources, and no transactions costs, then there is little need for firms
a. True b. False
An increase in planned investment will shift the _____
a. aggregate demand curve rightward b. aggregate demand curve leftward c. aggregate supply curve rightward d. aggregate supply curve leftward e. consumption function upward
"Monopolists do not worry about efficient production and minimizing costs since they can just pass along any increase in costs to their consumers." This statement is
a. false; price increases will mean fewer sales, which may lower profits. b. true; this is the primary reason why economists believe that monopolies result in economic inefficiency. c. false; the monopolist is a price taker. d. true; consumers in a monopoly market have no substitutes to turn to when the monopolist raises prices.