The effect throughout the entire economy of one firm’s increase in spending will be
A. less than the recipient’s income.
B. equal to the recipient’s income.
C. greater than the recipient’s spending.
D. offset by another individual’s saving.
Answer: C
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Suppose the only two goods you care about in the world are French wine (x) and Cuban cigars (y) and your utility function is given by u(x,y)=xy. You have no income, and the only thing in the world you possess is a large box you have just inherited from your rich uncle who passed away last week (of liver and lung cancer.) You open the box, and much to your liking, you find it contains 9 bottles of fine French wine and 3 boxes of exquisite Cuban cigars. Currently, the wine sells for $1 per bottle, and the cigars sell for $9 per box. Just as you receive the inheritance, you read the headline: "President Lifts Embargo - Price of Cuban Cigars Falls to $4 per Box!" a. Determine the income (or wealth) and substitution effects of a decrease of the price of cigars from 9 to 4. (Assume
fractions of bottles and cigars can be bought.) b. Are cigars a normal or inferior good for you? c. How much would you have been willing to pay the President in order not to lift the embargo? What will be an ideal response?
What makes advising on mergers and acquisitions particularly profitable for investment banks relative to other services that they provide?
What will be an ideal response?
All of the following are examples of residential investment spending except
A) the purchase of a new apartment building by a property management company. B) Sandra purchases her childhood home from her parents. C) the purchase of a new home by the MacGregor family. D) Tobias purchases a new duplex and plans to live in one half and rent the other half to his brother Dorian.
Other things being constant, the only way to move along a given supply curve for a product is for
A) the product's relative price to change. B) the future relative price of related goods to change. C) the number of sellers to change. D) technological changes to occur.