You are planning to open a new Italian restaurant in your hometown where there are three other Italian restaurants. You plan to distinguish your restaurant from your competitors by offering northern Italian cuisine and using locally grown organic
produce. What is likely to happen in the restaurant market in your hometown after you open?
A) Your competitors are likely to change their menus to make their products more similar to yours.
B) The demand curve facing each restaurant owner shifts to the right.
C) The demand curve facing each restaurant owner becomes more elastic.
D) While the demand curves facing your competitors becomes more elastic, your demand curve will be inelastic.
Answer: C
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If interest rates, prices, and output are all rising, then according to the Keynesian model, these changes must be caused by
a. an increase in aggregate supply. b. a shift to the right of the LM curve. c. a shift to the right of the LM curve. d. a shift up in the IS curve. e. none of the above.
Insurance companies try to mitigate the problem of adverse selection by:
A. charging a higher premium to groups with similar ages or behaviors that correlate with risky behavior. B. asking potential customers a seemingly endless list of questions to gain as much information as they can about the person's risk characteristics. C. charge a higher price to all individuals to cover the lack of information. D. All of these statements are true.
Modern Keynesians differ from traditional Keynesians because modern Keynesians
A. Believe that failures of the economy are inherent in a capitalist economy. B. Believe that tax cuts and government spending should be used to increase aggregate demand and output. C. Favor fixed rules and steady, predictable policies. D. Believe that monetary policy can be useful in managing the economy.
China's economy did not decline at all during its transition from communism to capitalism
Indicate whether the statement is true or false