If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:
A. decrease GDP by $20.
B. decrease GDP by $40.
C. increase GDP by $20.
D. increase GDP by $40.
C. increase GDP by $20.
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A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent." Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001. Based on the information given, what is the price elasticity of demand for ice cream? A) 12% B) 0.75 (in absolute value) C) 1.33 (in absolute value) D) We do not have enough information to calculate the elasticity.
Most people would prefer to drive a luxury car that has all the options, but more people buy less expensive cars even though they could afford the luxury car because
A) luxury cars cost a lot more than non-luxury cars. B) the marginal utility per dollar spent on the less expensive car is higher than that spent on luxury cars. C) car buyers are irrational. D) the total utility of less expensive cars is greater than that of luxury cars.
With respect to prices, at the macroeconomic level attention is focused on relative prices, while at the microeconomic level attention is focused on absolute prices
Indicate whether the statement is true or false
The most desired goods or services that are given up when a choice is made are called the
A. Rationing device. B. Utility cost. C. Economic profit. D. Opportunity cost.