Draw the point of consumer equilibrium from an indifference map and budget line. Explain why this is the point of optimization. Be sure your diagram is fully and correctly labeled.
What will be an ideal response?
The diagram should look like Figure 5-10 in the text, with for example, point T as the equilibrium. Point T, the tangency between an indifference curve and the budget line, maximizes utility on the limited budget. Any other point on the budget line is on a lower indifference curve (and provides less utility); any other point on the same indifference curve is more expensive and unattainable for the same amount of money.?
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Suppose GDP is $4,000 billion and aggregate expenditure is $3,750 billion. Inventories will
a. increase by $250 billion b. increase by $375 billion c. increase by $400 billion d. decrease by $250 billion e. decrease by $375 billion
If a nation has a(n) _____ in the production of an item, it can produce _____ of the item with the same quantity of resources than can other nations.
A. absolute advantage; more B. mutual gain; the same amount C. special advantage; more D. comparative advantage; more
If input prices change at exactly the same rate as output prices, the aggregate supply curve will be vertical.
Answer the following statement true (T) or false (F)
A government will create a surplus in a market when it sets a price
A. floor above the equilibrium price. B. ceiling above the equilibrium price. C. ceiling below the equilibrium price. D. floor below the equilibrium price.