Suppose coffee is sold in a monopolistically competitive market, where coffee is differentiated by coffee shop location. As firms enter in the long run and the price of coffee falls:
A. the market quantity of coffee demanded will increase, but the quantity of coffee supplied by any individual coffee shop declines.
B. the market quantity of coffee demanded will decrease as does the quantity supplied from any individual coffee shop.
C. the average costs of production decline.
D. the profits of individual coffee shops increase.
Answer: A
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
Using Figure 1 below, if the aggregate demand curve shifts from AD1 to AD2 the result in the short run would be:
A. P1 and Y2.
B. P3 and Y1.
C. P2 and Y3.
D. P2 and Y2.
Which of the following is the correct formula for computing GDP?
a. GDP = consumption + private investment + government spending + exports - imports b. GDP = consumption + public investment + government spending + exports - imports c. GDP = consumption + private investment + government spending - exports - imports d. GDP = consumption + private investment + government spending + transfers e. GDP = consumption + private investment + tax revenue + transfers
When demand and supply both increase, equilibrium price will _________ and equilibrium quantity will _________.
A. increase; increase B. decrease; increase C. remain the same; increase D. Any of these answers are possible