When the price of penicillin tablets increases by $5 per dozen, the drug company’s revenue increases by $6 million. Its elasticity of demand (in absolute terms) must be
A. zero.
B. greater than one.
C. less than one.
D. infinitely large.
Answer: C
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Starting from long-run equilibrium, a large increase in government purchases will result in a(n) ________ gap in the short-run and ________ inflation and ________ output in the long-run.
A. expansionary; higher; potential B. recessionary; higher; potential C. recessionary; lower; lower D. expansionary; higher; higher
If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,
a. MU = MSC. b. P < MPC. c. MPC < MSC. d. MPC > MSC.
An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease
Marginal cost is equal to
A. The change in total costs divided by the change in quantity produced. B. The change in fixed costs as more units are produced. C. Average total cost multiplied by quantity produced. D. Total cost divided by quantity produced.