Equilibrium requires two conditions: (1) that income equals output in the economy, and (2) that in equilibrium, aggregate expenditure (or consumption in this example) equals output. Explain why both of these are assumed to be true.
What will be an ideal response?
Answers will vary. Students should demonstrate an understanding of the reasoning behind both assumptions. For example, the first assumption is based on the idea that when goods and services are sold, the profits necessarily become income in the form of wages for workers and profits for business owners. The second assumption is based on the idea that when goods and services are purchased, these expenditures must come from the income that was paid to consumers.
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A perfectly competitive firm should hire additional units of labor in a competitive labor market if
a. marginal revenue is less than marginal cost b. the marginal revenue product exceeds the wage rate c. total revenue exceeds total cost d. the marginal product of labor exceeds the wage rate e. the marginal product of labor is less than the wage rate
To prevent nations with an inflation bias from entering the Eurozone, the Maastricht criteria for accession include:
A) a trial period of joining the Eurozone to see how they fare. B) a three-month period of low interest rates. C) a lengthy trial period of demonstrated commitment to low inflation before joining. D) promises and written commitments to low deficits and debt reduction on entering.
If a 20 percent increase in the price of a good results in a 60 percent increase in the demand for another good, what is the cross-price elasticity of demand?
a. +3 b. –3 c. +80 d. –40
Why is elasticity of demand greater for goods that are a large share of a consumer's budget?
What will be an ideal response?