Even when the demand for one good is high, the price of the good is also affected by supply. The textbook illustrates this by comparing the price of two items that were auctioned on the same day. Which of the following describes the results of the
auction?
A) A letter written by Abraham Lincoln sold for a higher price than a letter written by John Wilkes Booth.
B) A letter written by Abraham Lincoln was sold for a higher price than a letter written by Adam Smith.
C) A letter written by John Wilkes Booth sold for a higher price than a letter written by Lee Harvey Oswald.
D) A letter written by John Wilkes Booth sold for a higher price than a letter written by Abraham Lincoln.
Answer: D
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Studies show that the income elasticity of demand for wine is approximately five. What does this mean?
A) A 1 percent increase in income leads to a 5 percent increase in wine consumption. B) A 1 percent decrease in the price of wine leads to a 5 percent increase in wine consumption. C) A 5 percent increase in income leads to a 1 percent increase in wine consumption. D) Wine is a relatively elastic good.
If the money supply in the economy were at MS3, to engage in expansionary policy the Federal Reserve Bank would use open market operation to move money supply to:
A. MS2 B. MS1 C. it would stay at MS3 D. MS4
In contrast to a perfectly competitive firm, a monopolist operates in the long run
A. at a price higher than marginal cost. B. with a profit equal to zero. C. at an efficient level of output. D. at the minimum point on its average total cost curve.
Suppose that oil prices increase sharply while the rate of growth in labor productivity declines. The combination of these two factors should ________.
A. shift the short-run aggregate supply curve to the right B. shift the short-run aggregate supply curve to the left C. shift the aggregate demand curve to the left D. shift the aggregate demand curve to the right