What is an example of the substitution effect?
A. The firm expands output when production costs fall.
B. The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.
C. Workers choose to provide more hours of labor when the wage rate decreases.
D. More labor is hired as long as the marginal product of labor is positive.
E. The firm expands output when production costs increase.
Answer: B
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Refer to the accompanying figure.
Starting from long-run equilibrium at point C, a favorable inflation shock that decreases inflation from ? to ?1 will lead to a short-run equilibrium at point ________ creating ________ gap.
A. B; expansionary B. B; recessionary C. A; a recessionary D. A; an expansionary
Which one of the following statements is FALSE?
A. The relative price of a good is its price measured relative to the price of other goods. B. When the price of beer goes up by the same proportion as the prices of all other goods, the relative price of beer does not change. C. The nominal price of a good is its price measured in current dollars. D. Generally, what matters most to consumers is what a good costs in dollars.
Patterns of development or structural change analysis stress internal change in a developing country's economic, industrial, and institutional structure. What are some of the most important changes?
What will be an ideal response?
Briefly discuss the implications of a country operating inside its production-possibility curve. Use a graph in your discussion.
What will be an ideal response?