Explain why there is a direct relationship between price and quantity supplied.
What will be an ideal response?
For firms to produce more of a good per time period they have to purchase more materials, hire more labor, and purchase other inputs used to make the good. To get the producer to pay these higher costs it is necessary to increase the price the seller receives for each unit sold. Firms will also increase quantity supplied if the price of that good increases, allowing the firm to gain additional profits. The profits are incentives for the supplier to produce more.
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Refer to the figure below. In response to gradually falling inflation, this economy will eventually move from its short-run equilibrium to its long-run equilibrium. Graphically, this would be seen as
A. long-run aggregate supply shifting leftward B. Short-run aggregate supply shifting downward C. Aggregate demand shifting rightward D. Aggregate demand shifting leftward
Refer to the accompanying figure. Suppose that the government requires that resources be used efficiently. Which of the following would the government definitely not allow?
A. Production at point D. B. Specialization in medical care production. C. Specialization in warhead production. D. Production at any point other than C.
The economic surplus of an action is:
A. the benefit gained by taking an action. B. the money a person has left over after taking an action. C. the difference between the explicit and implicit costs of taking an action. D. the difference between the benefit and the cost of taking an action.
Which of the following decisions best reflects marginal thinking?
a. deciding to get married b. starting a new business c. attending graduate school d. switching phone carriers