For a particular good, a 5 percent increase in price causes a 2 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?
a. There are many close substitutes for this good.
b. The good is a luxury.
c. The market for the good is broadly defined.
d. The relevant time horizon is long.
c
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People must make choices because
a. wants are limited. b. resources are unlimited. c. they are unequally endowed with talent. d. wants are unlimited and resources are scarce.
A corporation has been steadily losing money on one of its product lines, plastic flamingo lawn ornaments. The firm produces plastic flamingos in a factory that cost $20 million to build 10 years ago. The firm is now considering an offer to buy that factory for $15 million. Which of the following statements about the decision to sell or not to sell is correct?
a. The firm should turn down the purchase offer because the factory cost more than $15 million to build. b. The $20 million spent on the factory is a sunk cost; that cost should not affect the decision. c. The $20 million spent on the factory is an implicit cost, which should be included in the decision. d. The firm should sell the factory only if it can reduce its costs elsewhere by $5 million.
If Doug has just watched a television show in which the main character is killed in an airplane crash, then the availability heuristic predicts that he will:
A. overestimate the dangers of air travel. B. more accurately assess the pros and cons of air travel. C. never watch that television show again. D. underestimate the dangers of air travel.
Figure 8.8 shows demand, marginal revenue, and costs of a duopolist. Suppose that the two duopolists have the same costs. If the two firms form a cartel and charge the profit-maximizing monopoly price, compared to perfect competition, the market price will be ________ and the total output level will be ________.
A. higher; greater B. higher; smaller C. lower; greater D. lower; smaller