Other things being equal, a rise in a country's terms of trade increases its welfare. What would happen if we relax the ceteris paribus assumption, and allow for the law of demand to operate internationally?
What will be an ideal response?
Let us assume that the terms of trade (or technically the net commodity terms of trade) improve, thus the relative price of a country's exports increase. This would, logically, lead to a shift away by world consumers to substitute goods. If the demand for a country's exports is elastic, the quantity decrease would be proportionally larger than the per unit price increase. This term of trade effect would actually lower the country's real income and economic welfare.
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The principal-agent problem means that managers must
A) find ways for managers to get people to buy stock in their company. B) devise compensation rules to induce principals to act in the best interest of agents. C) devise compensation rules to induce agents to act in the best interest of principals. D) find efficient agents who will negotiate fair compensation rules for a firm's principal managers.
Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has
A) fluctuated. OPEC's situation is an example of a prisoner's dilemma. B) risen slowly, but steadily. Members of OPEC fear that if they raise the price of oil too quickly this will lead oil-buying nations to accuse OPEC of price gouging, which is illegal under international law. C) been tied by OPEC to the rate of inflation in the United States. If, for example, the rate of inflation is 5 percent in one year, OPEC will raise the price of oil by 5 percent the next year. D) steadily fallen through the 1970s, then risen continually in the years since then. OPEC's actions are an example of implicit collusion.
Other things equal, a decrease in the cost of capital would be associated with an upward shift of the investment function and, hence, with a rise in aggregate expenditures
a. True b. False Indicate whether the statement is true or false
Collusion is:
A. more likely in perfectly competitive markets. B. not affected by firm's ability to enter a market. C. more likely when the threat of market entry is missing. D. less likely when the threat of market entry is missing.