There are no quasilinear tastes that have elasticity of substitution equal to 1 everywhere.
Answer the following statement true (T) or false (F)
True
Rationale: In order for tastes to have constant elasticity of substitution, they must be representable by a constant elasticity of substitution (CES) utility function. The CES utility function that has elasticity of substitution equal to 1 is the Cobb-Douglas function -- which is homothetic and not quasilinear.
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How do economists compute the price elasticity of demand?
a) the percentage change in the price divided by the percentage change in quantity demanded b) the percentage change in income divided by the percentage change in the quantity demanded c) the percentage change in the quantity demanded divided by the percentage change in price d) the percentage change in the quantity demanded divided by the percentage change in income
Assume that in year 1 your average tax rate is 20 percent on a taxable income of $20,000. If the marginal tax rate on the next $10,000 of taxable income is 30 percent, what will be the average tax rate if your taxable income rises to $30,000?
A. 7 percent. B. 30 percent. C. About 16 percent. D. About 23 percent.
Suppose a perfectly competitive constant-cost industry is in long-run equilibrium when market demand increases. What will probably happen to a firm in this industry in the long run?
a. ?The equilibrium price will be higher in the long run. b. ?There will be no change in the equilibrium price and quantity supplied by the firm. c. ?It will charge the same equilibrium price but will reduce its output. d. ?It will experience higher average total costs and will reduce its output. e. ?The equilibrium price will be lower in the long run.
Suppose the economy is initially experiencing a recessionary gap. A reduction in the size of the budget deficit will cause which of the following in the short run?
A. an increase in the size of the recessionary gap and decrease in real GDP. B. a reduction in the size of the recessionary gap and increase in real GDP. C. an inflationary gap. D. an increase in inflation and increase in aggregate supply.