By how much does the CPI overstate true increases in the cost of living, according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?
What will be an ideal response?
The Boskin Commission reported that the CPI overstates inflation by 1 to 2 percentage points per year. The bias arises because of difficulty in measuring quality change (especially for services) and because the CPI doesn't account for the substitution that people make between goods when relative prices change. The bias implies that our measures of real income growth are understated and that Social Security benefits are being adjusted more than they should be to account for inflation.
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If Happy Feet chooses to Ad and Best Nails then chooses to No Ad, Happy Feet earns ________ million in net profit and Best Nails earns ________ million.
Happy Feet wants to prevent Best Nails from entering the nail salon market. The above game tree illustrates the different strategies and corresponding payoffs for the two firms. Both Happy Feet and Best Nails have the same strategies of advertising (Ad) or not advertising (No Ad). The payoffs represent net profit in millions.
A) $4; $1
B) $5; $1
C) $2; $3
D) $1; $4
If a monopoly is maximizing profits,
a. price will always be greater than the elasticity of demand. b. price will always equal marginal cost. c. price will always be greater than marginal cost. d. price will always equal marginal revenue.
Which of the following actions best illustrates adverse selection?
a. A person purposely chooses bonds of corporations with high default risk because of the high returns. b. A person dislikes losing $400 more than he likes winning $400. c. After obtaining automobile insurance a person drives less carefully than before. d. A person intending to take up dangerous hobbies applies for life insurance.
Personal consumption accounted for $12.3 billion in 2015 in the United States.
Answer the following statement true (T) or false (F)