Suppose the price elasticity of demand for cigarettes is -0.4. The FDA decides to regulate tobacco production, which increases the price of cigarettes and causes the quantity of cigarettes demanded to decrease by 25 percent. What is the percentage
increase in price which would lead to the 25 percent decrease in quantity demanded? If the price elasticity was -4, what would be the percentage increase in price?
What will be an ideal response?
If price elasticity of demand is -0.4, a 25 percent decrease in quantity demanded would result from a 62.5 increase in price.
If price elasticity of demand is -4, a 25 percent decrease in quantity demanded would result from a 6.25 increase in price.
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Supply-side economists advocate
A. A reduction in the incentives to save so that more income will be spent. B. An increase in transfer payments. C. The use of minimum wage laws to guarantee fair wages for workers. D. A reduction in structural unemployment through worker training.
When the substitution effect is greater than the income effect, Juanita will not supply more work if
A. the wage rate and the price level increase proportionately. B. wages are falling faster than prices. C. the percentage increase in the price level is greater than the percentage change in wages. D. all of the above
Keynesians reject the influence of monetary policy on the economy. One argument supporting this Keynesian view is that the:
a. money demand curve is horizontal at any interest rate. b. aggregate demand curve is nearly flat. c. investment demand curve is nearly vertical. d. money demand curve is vertical.
Suppose the nominal interest rate is 10 percent, the tax rate on interest income is 28 percent, and the inflation rate is 6 percent. Then the after-tax real interest rate is -3.2 percent
a. True b. False Indicate whether the statement is true or false