Why is it customary to report price elasticity of demand in absolute value terms, while cross elasticities and income elasticities are reported with their sign attached?
Price elasticity of demand is always negative, since the law of demand says that an increase in price will reduce quantity demanded. It is simpler to use the absolute value, recognizing that the true sign is always negative. Cross elasticities and income elasticities can be positive or negative, with the signs giving information. A positive cross elasticity indicates that as the price of product Y increases, purchases of X increase, so the two goods are substitutes. Income elasticities are typically positive, as increased income leads to a greater quantity purchased, but the opposite does occasionally happen for inferior goods such as Spam.
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The interest rate on loans made by banks in the market in which they lend and borrow reserves from each other for very short periods of time is known as the
a. discount rate b. legal reserve rate c. federal funds rate d. open market rate e. margin rate
An increase in the budget deficit makes domestic interest rates
a. rise because the supply of loanable funds shifts left. b. fall because the supply of loanable funds shifts left. c. rise because the demand for loanable funds shifts right. d. fall because the demand for loanable funds shifts right.
A simultaneous game is said to exist when:
A. firms are playing pricing games in different markets at the same time. B. firms choose their strategies at the same time as their rivals. C. firms can set multiple prices for the same good at the same time. D. strategies are set without regard to possible interactions in future time periods.
Refer to the information provided in Figure 2.4 below to answer the question(s) that follow.
Figure 2.4According to Figure 2.4, Point E necessarily represents
A. only motorcycles being produced. B. overallocation of resources. C. an impossible production point. D. technological advancement.