Explain why the rise in the price of a fixed basket of goods tends to overstate the rise in a consumer's true cost of living
The rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer's true cost of living because it doesn't take into account that the person can substitute goods according to changes in their relative prices. (i.e., substitution bias. Also, quality bias and new goods bias.)
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Refer to Figure 12-10. Total revenue at the profit-maximizing level of output is
A) $1,200. B) $2,500. C) $4,800. D) $6,000.
For something to satisfy the medium-of-exchange function of money, it must be
A) backed by gold. B) readily exchangeable for other goods. C) issued by a central bank. D) an inherently valuable commodity.
Which of the following would shift the FE line to the right?
A) An adverse supply shock B) An increase in labor supply C) A decrease in the capital stock D) An increase in the future marginal productivity of capital
A firm hires labor, capital, and land to produce tomatoes. Currently the marginal product of the last unit of labor input is 20, the marginal product of the last unit of capital input is 30, and the marginal product of the last unit of land input is 100. The market wage is $10 and the market price for capital is $15. If the firm is using the optimal combination of inputs, then the price of land is
A. $2. B. $20. C. $50. D. indeterminate from the given information.