When the price of gasoline? rises, some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behavior is called
A) increase in quality bias.
B) outlet bias.
C) substitution bias.
D) discrimination bias.
Ans: C) substitution bias.
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Suppose a paper mill earns $1,000,000 in profits when it pollutes a river, and it can abate pollution at a cost of $120,000. The effects of the pollution are confined to a single farmer who earns $400,000 if the water he uses from the river is clean, and $300,000 if it's polluted. Suppose the law guarantees the farmer access to clean water from the river. Which of the following describes an efficient outcome in this case?
A. The owner of the mill is unable to pay the farmer enough to secure his permission to pollute the river. B. The farmer is unable to pay the owner of the mill enough to get him to stop polluting. C. The owner of the mill pays the farmer $110,000 for his permission to pollute the river. D. The farmer pays the owner of the mill $90,000 to stop polluting.
The financial statements of firms generally are audited by
A) employees of the firm being audited. B) employees of private accounting firms. C) the board of directors of the corporation being audited. D) employees of the federal government.
A linear total cost function implies that:
a. marginal costs are constant as output increases b. average total costs are continually decreasing as output increases c. a and b d. none of the above
Higher interest rates make it:
A. more expensive to borrow. B. harder to get a loan typically. C. easier to get a loan typically. D. less expensive to borrow.