Suppose we observe an increase in both the equilibrium price and quantity of bread. This is best explained by:
A. a decrease in the price of pasta, a substitute to bread.
B. a decrease in the price of butter, a complement to bread.
C. an increase in the cost of flour used in the production of bread.
D. a technological advance that lowers the marginal cost of producing bread.
Answer: B
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A monopoly market is characterized by
a. many buyers and sellers. b. "natural" products. c. barriers to entry. d. a Nash equilibrium.
When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; expand B. increase; raise; decline C. decline; lower; decline D. decline; raise; decline
Suppose that Harold buys collision insurance for his car and then drives it recklessly. This is an example of:
A. a positive spillover. B. moral hazard. C. adverse selection. D. irrational behavior.
If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
a. the multiplier is 0.125. b. the multiplier is 3.5. c. the multiplier is 8. d. the multiplier is 50.