What is the difference between a normal good and an inferior good? How does this relate to the demand curve?
What will be an ideal response?
A normal good is one for which demand increases as income increases, and an inferior good is one for which demand decreases as income decreases. Hence, an increase in income causes the demand curve for a normal good to shift to the right, showing an increase in demand; and an increase in income causes the demand curve for an inferior good to shift to the left, showing a decrease in demand.
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A monopolistic firm
A) will never sell a product whose demand is inelastic at the quantity sold. B) can sell as much as it wants for any price it determines in the market. C) cannot determine the price, which is determined by consumer demand. D) cannot sell additional quantity unless it raises the price on each unit. E) will always earn a profit in the long run.
Refer to Figure 7.1. At output level Q2
A) average fixed cost is increasing. B) average variable cost equals average fixed cost. C) marginal cost is negative. D) average total cost is negative. E) none of the above
If the current market price is above the equilibrium price, then:
a. the quantity demanded exceeds the quantity supplied. b. there will be a shortage. c. the quantity supplied will exceed the quantity demanded. d. the price will have to increase to establish equilibrium. e. demand will shift to the left.
A monopolistic competitor will maximize its profits at the output level at which
A) TC = TR. B) MC = MR. C) the MC curve intersects the demand curve. D) MR = ATC.