How is a budget line similar to a production possibilities frontier? How do they differ?
What will be an ideal response?
Both the budget line and the production possibilities frontier illustrate limits. The budget line describes the limits to consumption possibilities; the production possibilities frontier describes the limits to production possibilities. A consumer is unable to consume combinations of goods that lie beyond his or her budget line. Similarly, a nation is unable to produce combinations of goods that lie beyond its production possibilities frontier.
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Suppose that in 2013, all prices in the economy increased by 50% and that all wages and salaries also increased by 50%. In 2013, you were
A) better off than you were in 2012 as your salary was higher than it was in 2012 and you could buy more goods and services. B) worse off than you were in 2012 as you could no longer afford to buy as many goods and services. C) no better off or worse off than you were in 2012 as the purchasing power of your salary remained the same. D) The purchasing power of your salary cannot be determined with the given information, so you cannot determine if you were better off or worse off in 2013 than in 2012.
The annual rate of growth of commodity output during the Civil War:
a. held constant from the previous decade. b. increased by roughly 25 percent. c. fell by more than 50 percent. d. None of the above is correct.
If the bidders at a first-price auction have true values of $8, $7, $6, and $5, the item will sell for
a. $8 b. $7 c. just over $7 d. just under $7
Two economists found empirical evidence that when the price of rice decreased in the Hunan province of China, local residents consumed less rice than before the price decrease. The study provides a real-world example of a(n)
a. normal good. b. inferior good that is not a Giffen good. c. Giffen good. d. luxury good.