Explain the income and substitution effects of an increase in the price of one good on an individual's consumption choice
What will be an ideal response?
Since an increase in the price of one good reduces a consumer's purchasing power (in other words, the consumer feels less wealthy), she is likely to buy less of both goods. This is called the income effect of a price increase. Also, since the increase in price will make the good more expensive relative to other good, the quantity purchased of that good will fall. This is called the substitution effect of the price increase.
A
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In the long run all costs are variable costs. Why?
What will be an ideal response?
How much would the firm make in revenue if it chooses to sell only the high-end professional series?
a. $100 b. $110 c. $120 d. $130
Which of the following will be included in the current year's gross domestic product (GDP)?
a. The sale price of equipment produced last year but sold this year b. The money spent by Kate on the purchase of new furniture c. The money spent by Barney on the purchase of his uncle's house d. The sale price of the stock purchased by John e. The opportunity cost of the time spent by Bruno cooking lunch for his neighbor
The table below shows the marginal benefit and marginal cost of purchasing an additional unit of 3 different public goods. Marginal benefitMarginal costTotal spending on the public goodPublic good 1$20$20$1,500Public good 2$15$25$800Public good 3$10$5$700 Total economic surplus could be increased by reallocating total spending away from
A. public good 2 toward public good 3. B. public good 2 toward public good 1. C. public good 1 toward public good 3. D. public good 3 toward public good 1.