Good A and good B are substitutes in production. The demand for good A decreases, which lowers the price of good A. The decrease in the price of good A
A) decreases the supply of good B.
B) increases the supply of good B.
C) decreases the demand for good B.
D) increases the demand for good B.
B
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Fresh Flour makes baking flour and sells its flour in 4 pound sacks or bags. The managers of Fresh Flour are considering whether the firm should make or buy the flour sacks. To make the sacks, Fresh Flour needs a $500,000 piece of equipment. Using this equipment, Fresh Flour can make a flour sack for $0.01 and, for simplicity, ignore taxes and assume that the $0.01 cost includes depreciation and
all other costs. Fresh Flour would finance the $500,000 investment using its own funds and, if it purchased the flour sacks from another firm, it would pay $0.19 a flour sack. The life span of the equipment is 10 years and it has no salvage value at the end of the ten years. If the discount rate is 6 percent and the firm needs 400,000 flour sacks a year, what is the present value of the equipment? A) $623,850 B) $459,250 C) $500,962 D) $529,926
Relative-price variability is "automatic" when
a. firms change prices only once in a while. b. firms change prices often. c. people increase the frequency of their trips to the bank. d. people decrease the frequency of their trips to the bank.
Which of the following is an advantage of the European Monetary Union?
A. Increased cost of exchanging currencies B. A higher likelihood of conflict between members C. Increased monetary independence for each member D. Increased price transparency
If the price of a normal good rises, the income effect will result in households buying ________ of the good and the substitution effect will result in households buying ________ of the good.
A. more; more B. more; less C. less; more D. less; less