Here are three possible definitions of "Compensating Variation": I. the amount a person would be willing to pay to avoid a price increase. II. the amount of additional income needed to allow a person to restore his or her utility back to its initial level after it has been reduced by a price increase. III. the amount of income that a person who experienced a price increase would be willing to pay
to see the price return to its earlier level. Which of these definitions is (are) correct?
a. Only I
b. I and II
c. II and III
d. Only III
b
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If the Herfindahl-Hirschman Index for an industry is 8,528, is the industry competitive or concentrated?
What will be an ideal response?
If the Federal Reserve buys $500 of government securities when the required reserve ratio is 20 percent, the maximum potential change in the money supply is a(n)
A) increase by $100. B) increase by $2,500. C) decrease by $100. D) decrease by $2,500.
Consider the market for ride-on lawn mowers and the recent increases in the price of oil. The recent increase in the price of oil makes it more expensive to manufacture ride-on lawn mowers. An increase in the price of oil also makes it more expensive to run a ride-on mower. What is likely to happen to equilibrium price and quantity of lawn mowers as a result in the changing price of oil? Supply and demand will both:
A. increase, increasing equilibrium quantity and having an indeterminate effect on price. B. decrease, decreasing equilibrium quantity and having an indeterminate effect on price. C. increase, increasing equilibrium price and having an indeterminate effect on quantity. D. decrease, increasing equilibrium price and having an indeterminate effect on quantity.
If the government wants to generate a surplus as a contraction measure, the most effective method of doing so is to
a. hold taxes and decrease spending. b. increase taxes and hold or decrease spending. c. decrease both spending and taxes. d. increase both taxes and spending.