What does a budget constraint represent? How do budget constraints explain the trade-offs that consumers face?
What will be an ideal response?
A budget constraint is an equation representing the goods or activities that a consumer can choose given her limited budget. Tradeoffs arise when some benefits must be given up in order to gain others. In other words, a tradeoff occurs when you give one thing up to get something else. Since a budget constraint shows the set of things that you can choose to do or buy with a fixed amount of money, it also shows that if you choose to buy more of one good, you will have to buy less of another. Therefore, a budget constraint equation implies that a consumer faces a tradeoff.
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Frank Murphy is considering how many snowmobiles to purchase for his snowmobile rental business. Below are his estimates of the number of snowmobile rentals per year, depending on the number of snowmobiles available.Number ofSnowmobilesYearlyrentals1902170324043005350After paying all non-interest expenses, expenses Frank expects to net $10 per rental. Each snowmobile costs $15,000. How many snowmobiles should Frank purchase if the real interest rate is 4.5%?
A. 4. B. 0. C. 2. D. 1.
As productive capital goods are established in developing nations
A) developed nations will become less prosperous. B) these countries will experience higher rates of economic growth. C) portfolio investment will be replaced by loans from international aid agencies. D) they will be less likely to engage in international trade.
If a market is controlled by a perfect-price-discriminating monopoly, then
A) a deadweight loss is generated. B) there is no consumer surplus. C) consumer surplus is the same as under perfect competition. D) output is less than that of a single-price monopoly.
The rational expectations hypothesis implies that discretionary macro-policy will:
a. be ineffective, even in the short run. b. be effective in the short run but ineffective in the long run. c. be effective both in the short run and long run. d. make it possible to trade-off a higher rate of inflation for a lower rate of unemployment.