Figure 11.2Figure 11.2 shows demand and costs for a monopolistically competitive firm. In the long run we expect:
A. the firm to produce more output at a higher price.
B. the firm to charge a price which is equal to its average cost of production.
C. the firm to experience a decrease in the average cost of production.
D. the firm to earn a greater profit.
Answer: B
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When the price of a good rises, the resulting change in relative price causes the consumer to reduce his quantity demanded of that good, even when the consumer is income-compensated so that he remains indifferent about the price change. This observation is known as the
a. Giffen good phenomenon. b. law of demand. c. substitution effect. d. income effect.
Which of the following is NOT a reason that interest rates remained low despite high budget deficits following the financial crisis?
A) increased demand for U.S. government bonds B) the perceived riskiness of alternative investments such as stocks C) low interest rates on CDs and similar short-term assets D) increases in expected inflation
Another word for elasticity is
a. responsiveness b. happiness c. bonus d. profit e. surplus
Which of the following is a sound economic reason why the government should subsidize your college education?
A. To help the school's monopoly power over private schools. B. It is too expensive. C. The profit motive would cause the private sector to overproduce education. D. Third parties, other than yourself, benefit from you being educated.