The cross-price elasticity of demand between goods X and Y
A. measures the responsiveness of the quantity of X demanded to changes in the price of Y.
B. is the percentage change in the price of Y divided by the percentage change in the quantity of X demanded.
C. is greater than zero if X and Y are substitutes.
D. both a and c
E. all of the above
Answer: D
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Determine whether each of the following is a positive or normative statement. (a) The Fed should lower interest rates to increase economic growth, because we're in a recession. (b) Higher government budget deficits cause higher interest rates
(c) The trade deficit should decline because of the fall in the value of the dollar. (d) Because of our high inflation rate, we must reduce the rate of money growth. (e) A generous unemployment insurance system is a primary cause of high unemployment in Europe. (f) Increased average labor productivity in a country should lead to faster growth. (g) Government budget deficits are too high in the United States and should be reduced.
Choices that do not exhaust the consumer's budget lie to the ______ of the budget line.
A. southwest B. northeast C. northwest D. southeast
Figure 9-4
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In Figure 9-4, which expenditure level will cause an inflationary gap?
A. 1 B. 2 C. 3 D. There will be no inflationary gap.
Smyth Industries operated as a monopolist for the past several years, earning annual profits amounting to $50 million, which it could have maintained if Jones Incorporated did not enter the market. The result of this increased competition is lower prices and lower profits; Smyth Industries now earns $10 million annually. The managers of Smyth Industries are trying to devise a plan to drive Jones Incorporated out of the market so Smyth can regain its monopoly position (and profit). One of Smyth's managers suggests pricing its product 50 percent below marginal cost for exactly one year. The estimated impact of such a move is a loss of $1 billion. Ignoring antitrust concerns, compute the present value of Smyth Industries' profits, if it could have remained a monopoly when the interest rate
was 5 percent. A. $200 million B. $100 million C. $1.05 billion D. $210 million