Assume that the budget constraint in the figure below is: P E E + P A A = I, where I is total income and P E is the price of education and P A is the price of all other goods. If U(E,A) = A + E, P E = 2, P A = 1, and I = 10. What is the quantity of education and all other goods consumed?
This is a corner solution where the consumer will have all of one good and none of the other.
In this case she wants 5 units of education and nothing else.
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If, in response to an increase in the price of chocolate the quantity of chocolate demanded decreases, economists would describe this as
A) a change in consumer income. B) a decrease in quantity demanded. C) a decrease in demand. D) a decrease in consumers' taste for chocolate.
Specialization should be guided
A) by government regulations. B) comparative advantage C) by only technology. D) by only labor or technology.
Suppose you are producing where MC = AVC = $3 and this is loss minimizing. If market reports predict that the price of your product will reach a long-run equilibrium level that is $4 higher than it is today, you should
a. increase output in advance of the expected price increase b. remain in business c. shut down d. remain in business only if your most efficient production level has an average total cost less than or equal to $7 e. shut down until the price increases, then get back in business
The theory of comparative advantage describes the role of national resource availability on domestic competitiveness
Indicate whether the statement is true or false