Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe?
a. The quality of televisions deteriorates and televisions become more expensive relative to other goods.
b. The quality of televisions improves and televisions become less expensive relative to other goods.
c. The quality of televisions improves and televisions become more expensive relative to other goods.
d. The quality of televisions deteriorates and the price of televisions relative to other prices remains unchanged.
c
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Firms that sell information products experience relatively high fixed costs but, once they have produced the first unit, can
A) sell additional units at a loss, or above cost. B) provide expensive information products to consumers. C) sell additional units at a relatively low cost per unit. D) experience short-run diseconomies of scale.
If the Fed wants to reverse the effects of a favorable supply shock on unemployment, it should
a. increase the money supply growth rate which raises the inflation rate. b. increase the money supply growth rate which reduces the inflation rate. c. decrease the money supply growth rate which raises the inflation rate. d. decrease the money supply growth rate which reduces the inflation rate.
The largest expenditure component of U.S. GDP is:
A. investment. B. exports. C. government purchases. D. consumption.
Consider an incumbent that is a monopoly currently earning $2 million annually. Given the declining costs of raw materials, the incumbent believes a new firm may enter the market. If successful, a new entrant would reduce the incumbent's profits to $1.2 million annually. To keep potential entrants out of the market, the incumbent lowers its price to the point where it is earning $1.6 million annually for the indefinite future. If the interest rate is 10 percent, does it make sense for the incumbent to limit price to prevent entry?
A. Yes, since $2 million > $200,000. B. Yes, since $4 million > $400,000. C. No, since $4 million > $400,000. D. No, since $2 million > $200,000.