Suppose that an early frost damages the California orange crop. As a result, the price of Texas oranges increases. Ceteris paribus, which one of the following statements best explains this situation?
A. The demand for California oranges fell because of the freeze, and this led to a higher demand for Texas oranges.
B. The supply of California oranges decreased, causing the supply of Texas oranges to increase, which resulted in a higher price.
C. The supply of California oranges decreased, causing the supply of Texas oranges to decrease, which resulted in a higher price.
D. The supply of California oranges decreased, causing their price to increase, and thus causing the demand for Texas oranges to increase.
Answer: D
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Some economists believe that a positive aggregate demand shock to an economy with large amounts of excess capacity and unemployment does not necessarily cause an increase in prices. Economists who adhere to this belief are followers of
A) Keynesian economics. B) Say's laws of economics. C) classical economics. D) supply-side economics.
In analyzing the decision to shut down in the short run we assume that the firm's fixed costs are
A) nonmonetary opportunity costs. B) sunk costs. C) implicit costs. D) capital costs.
As output increases, a typical firm's unit costs
a. decrease because the firm buys its inputs in large quantities b. increase because the supply of inputs increases c. remain constant d. increase due to the increasing scarcity of resources e. decrease as firms take advantage of diseconomies of scale
Refer to Figure 7.5. Which diagram represents isoquants for inputs that are perfect substitutes?
A. A
B. B
C. C
D. D