Explain why the demand for food is inelastic in terms of the substitution effect and diminishing returns
What will be an ideal response?
When the price of a good such as food falls, consumers usually shift demand from goods whose prices have remained constant to the reduced-price food. However, the substitution effect is modest in terms of food, as consumers will not consume an endlessly larger and larger amount of food. Thus, even as the price for a certain food commodity falls substantially, demand may not actually increase by much.
The same effect is true when you look at demand in elasticity in terms of diminishing returns. When a society has a high income, it is relatively saturated with food and other goods. This means that there are little gains from additional units of food, causing demand to be inelastic.
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What is the relationship between marginal cost and fixed cost?
What will be an ideal response?
If spending is NOT responsive to changes in the interest rate, then the
A) LM curve is vertical. B) IS and LM curves are vertical. C) IS curve is vertical. D) IS curve is vertical and the LM curve is horizontal.
Consider Gary's utility function: U(X,Y) = 5 XY, where X and Y are two goods
If the individual consumed 10 units of X and received 250 units of utility, how many units of Y must the individual consume? Would a market basket of X = 15 and Y = 3 be preferred to the above combination? Explain.
The dynamic OLS (DOLS) estimator of the cointegrating coefficient, if Yt and Xt are cointegrated,
A) is efficient in large samples B) statistical inference about the cointegrating coefficient is valid C) the t-statistic constructed using the DOLS estimator with HAC standard errors has a standard normal distribution in large samples D) all of the above