Suppose we observe an economy experiencing an economic expansion and high inflation. This means the expansion is attributed to
a. an anticipated increase in aggregate demand.
b. an increase in long-run aggregate supply.
c. an unanticipated decrease in aggregate demand.
d. an unanticipated decrease in aggregate supply.
A
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When does a decrease in supply raise the price more: When demand is elastic or when demand is inelastic? When OPEC decreases the supply of oil, the price of gasoline skyrockets. Hence is the demand for gasoline elastic or inelastic?
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Suppose that production for good X is characterized by the following production function, Q = K0.5L0.5, where K is the fixed input in the short run. If the per-unit rental rate of capital, r, is $25 and the per-unit wage, w, is $15, then the variable cost of using 81 units of capital and 9 units of labor is:
A. $135. B. $2,160. C. $2,025. D. There is insufficient information to determine the variable costs.
To economists, the main difference between the short run and the long run is that:
A. the law of diminishing returns applies in the long run, but not in the short run. B. in the long run all resources are variable, while in the short run at least one resource is fixed. C. fixed costs are more important to decision making in the long run than they are in the short run. D. in the short run all resources are fixed, while in the long run all resources are variable.