In a past fare war, U.S. Air reduced the price of its Charlotte, North Carolina, to New York City round-trip fare from $198 to $138 to match American Airlines. U.S. Air did so reluctantly, saying it would cost the company millions of dollars in revenue. American, on the other hand, believed the fare cut would increase its revenue. What different assumptions about the underlying price elasticity of demand did each airline believe true?
What will be an ideal response?
U.S. Air must have believed demand in this price range to be inelastic, so that a fare cut would lead to a relatively small increase in quantity demanded. American must have believed the opposite, that the fare cut would stimulate a more than proportional, or elastic, consumer response.
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If supply decreases and demand increases, then the equilibrium
a. price will decrease and quantity will increase b. price will increase and quantity will decrease c. price will increase and quantity could increase, decrease, or remain the same d. price could increase, decrease, or remain the same and quantity will increase e. price will increase, decrease, or remain the same and quantity will decrease
Equilibrium in the market for funds occurs when the
a. lenders and borrowers are mutually satisfied at some interest rate. b. marginal revenue product of investment using the funds equals the interest rate. c. demand curve for funds and the supply curve for funds intersect. d. All of the above are correct.
Which of the following best states economists' understanding of the facts concerning the relationship between natural resources and economic growth?
a. A country with no or few domestic natural resources is destined to be poor. b. Differences in natural resources have virtually no role in explaining differences in standards of living. c. Some countries can be rich mostly because of their natural resources and countries without natural resources need not be poor, but can never have very high standards of living. d. Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living.
An inferior good is one in which
a. the average consumer chooses not to consume.
b. the good is not equally valued by all consumers.
c. an increase in income increases consumption of the good.
d. an increase in income decreases consumption of the good.