Suppose that gasoline prices increase dramatically this month. Lola commutes 100 miles to work each weekday. Over the next few months, Lola drives less on the weekends to try to save money. Within the year, she sells her home and purchases one only 10 miles from her place of employment. These examples illustrate the importance of
a. the availability of substitutes in determining the price elasticity of demand.
b. a necessity versus a luxury in determining the price elasticity of demand.
c. the definition of a market in determining the price elasticity of demand.
d. the time horizon in determining the price elasticity of demand.
d
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At the equilibrium level of aggregate expenditure, what does aggregate expenditure equal? What happens at other levels of real GDP to bring about an equilibrium?
What will be an ideal response?
Policies to reduce the likelihood of financial crises might include ________
A) enlarging government budget deficits B) reducing imbalances in global trade and capital flows C) keeping the inflation rate near or below zero D) more aggressive use of stabilization policy E) all of the above
If some firms internalize their external costs by being a cleaner and more "environmentally friendly" producers than other firms that do not, then which of the following best describes this situation?
A. The environmentally friendly firm will be operating at a lower marginal and average cost than those firms that shift some costs to society in the form of external costs. B. In a long-run competitive equilibrium in which consumers do not distinguish between environmentally friendly and standard producers, the environmentally producers will receive negative economic profits and be forced to change or exit. C. Without regulations requiring firms to internalize their external costs, environmentally friendly producers will earn positive economic profits even without consumers paying them a higher price than standard producers. D. Standard firms will have an incentive to shift their production to an environmentally friendly process.
A decrease in business taxes will tend to:
A. increase aggregate demand and increase aggregate supply. B. increase aggregate supply but not change aggregate demand. C. increase aggregate demand but not change aggregate supply. D. decrease aggregate supply and decrease aggregate demand.