What must happen to the market price in order for a shortage to be eliminated?
A. Price must fall.
B. Price must rise.
C. Price must stay the same.
D. Price may rise or fall depending on the size of the shortage.
Answer: B. Price must rise.
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Since price tends to equal marginal utility, the price of water is low and the price of diamonds is high.
Answer the following statement true (T) or false (F)
Classical growth theory proposes that real GDP growth is ________ and that real GDP per person will ________ the subsistence level
A) permanent; temporarily be above B) permanent; always be above C) temporary; temporarily be above D) temporary; be above and below
The above figure shows the marginal social benefit and marginal social cost curves of coffee in the nation of Kaffenia. Producing and consuming the efficient quantity of coffee in Kaffenia means that
A) the marginal social cost of the last pound of coffee is at the lowest possible value. B) the marginal social benefit of the last pound of coffee is at its highest possible value. C) to produce more coffee, the marginal social benefit of an additional pound of coffee is less than its marginal social cost. D) All of the above are correct.
Suppose the U.S. one-year interest rate is 3% per year, while a foreign country has a one-year interest rate of 5% per year. Ignoring risk and transaction costs, a U.S. investor should invest in foreign bonds as long as the expected yearly rate of depreciation of the foreign currency is
A) less than 5%. B) greater than 5%. C) greater than 2%. D) less than 2%. E) less than 1%.