According to the aggregate supply curve, what happens as the price level increases?
(A) Consumers increase their spending.
(B) Profits decrease.
(C) Real GDP falls.
(D) Firms have more of an incentive to increase output.
Answer: (D) Firms have more of an incentive to increase output.
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The price of a computer is $1,000 and the price of a car is $12,000. What is the relative price of a car? What is the relative price of a computer?
What will be an ideal response?
Would a profit-maximizing firm sell where demand is inelastic?
a. No, this would not follow the rule of MC = MR. b. No, the firm could not profitably raise price. c. Yes, the firm could profitably lower price to attract sales. d. Yes, in this case there are few substitutes for the good.
Will is risk averse and has $1,000 with which to make a financial investment. He has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years. Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Will should choose
a. option A. b. option B. c. option C. d. either option A or option B because Will is indifferent between those two options and they are superior to option C.
The law of demand is illustrated when:
A) an increase in tuition encourages more students to enroll in college because the quality of education has risen. B) an increase in the purchases of personal computers results from lower prices. C) higher oil prices cause oil companies to drill for new sources of oil. D) higher fees for the use of public golf courses force golfers to purchase fewer golf balls.