Why do economists measure responsiveness of demand to price in percentage changes rather than in absolute changes?
What will be an ideal response?
Different units of measurement will give different values, and it could be misleading. Elasticity measures responsiveness on the basis of percentage changes in price and quantity rather than on absolute changes. The elasticity formula solves the units problem because percentages are unaffected by units of measurement. For example, if the government expenditure doubles, it goes up by hundred percent, whether measured in millions or billions of dollars.
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
When the price of peaches went up, people bought fewer peaches and more strawberries. This is an indication that tastes have changed as a result of the price increase.
Answer the following statement true (T) or false (F)
At the beginning of World War II, a rationing system was established in the United States. Ration stamps or cards were issued for a variety of commodities such as canned milk and gasoline
To receive a gasoline ration card, a person had to certify a need for gas. The ration cards ranged from the most limited A card which only allowed 3 to 4 gallons per week to the most generous X card, which allowed the carrier to buy an unlimited amount of gasoline. A government entity, the War Price and Rationing Board, decided who received and A or an X card. Gasoline cards were allocated through A) command. B) market price. C) majority rule. D) force.
Use the above figure. The TFC at output level 10 is
A. $3. B. $1. C. $10. D. $2.