Assume a consumer is currently purchasing a combination of goods, X and Y, that maximizes her utility given her budget constraint, i.e., MRSX,Y = PX/PY. Now assume that there is a decrease in the price of Y
In this case, to once again maximize her utility, the consumer will want to adjust her purchases of X and Y such that: A) the marginal rate of substitution of X for Y, i.e., MRSX,Y, decreases.
B) the marginal rate of substitution of X for Y, i.e., MRSX,Y, stays the same.
C) the marginal rate of substitution of X for Y, i.e., MRSX,Y, increases.
D) none of the above. The consumer will continue to maximize her utility after the price change by continuing to consume the same combination of X and Y.
C
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The market system works by getting each person, motivated by his or her own self-interest, to produce products for other people
Indicate whether the statement is true or false
Suppose the United states production possibility frontier was flatter to the widget axis, whereas Germany's was flatter to the butter axis. We now learn that the German wage doubles, but U.S. wages do not change at all. We now know that
A) the United States has no comparative advantage. B) Germany has a comparative advantage in butter. C) the United States has a comparative advantage in butter. D) Not enough information is given. E) Germany gains a comparative advantage in widgets.
Loss aversion occurs when:
A. the consumer's valuation of an outcome is less sensitive, per dollar, to small losses than to small gains. B. the consumer's valuation of an outcome is more sensitive, per dollar, to small losses than to small gains. C. the consumer's valuation of an outcome is more sensitive, per dollar, to large losses than to small gains. D. the consumer's valuation of an outcome is less sensitive, per dollar, to small losses than to large gains.
The effectiveness of monetary policy as a stabilization tool is limited by
a. activist economists, who exert pressure on politicians. b. the inability to forecast the future and time policy changes in a stabilizing manner. c. Congressional attempts to offset changes in monetary policy with modifications in fiscal policy. d. the inability of the Federal Reserve to alter the money supply.