Elasticity- The measure of sensitivity of quantity supplied to changes in price. Demand Elasticity- The measure of responsiveness of the consumers to the changes in price. Classification of Demand Elasticity 1.Elastic Demand- when the quantity demanded is greatly affected by the changes in price. 2.Inelastic Demand- the quantity demanded increase in price creates a lesser change in the percentage in quantity demanded. 3.Unitary Demand- when there is an
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good A is an inferior good‚ an increase in income leads to: A. a decrease in the demand for good B. B. a decrease in the demand for good A. C. an increase in the demand for good A. D. no change in the quantity demanded of good A. 4. If A and B are complements‚ an increase in the price of good A would: A. have no effect on the quantity demanded of B. B. lead to an increase in demand for B. C. lead to a decrease in demand for B. D. none of the statements associated with this question
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Test Bank 1 to accompany Economics Sixteenth Edition Campbell R. McConnell University of Nebraska Stanley L. Brue Pacific Lutheran University Prepared by Stanley L. Brue Pacific Lutheran University Test Bank 1 to accompany ECONOMICS Campbell R. McConnell and Stanley L. Brue Published by McGraw-Hill‚ an imprint of The McGraw-Hill Companies‚ Inc.‚ 1221 Avenue of the Americas‚ New York‚ NY 10020. Copyright 2005 by The McGraw-Hill Companies‚ Inc. All rights reserved. The contents‚ or
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together correspond to nearly 45% of world’s GDP. Now‚ take into account the fact that by nature Indians and Chinese are savers. The household domestic savings in India is about 23% and China more than 25% significantly less than the U.S. The marginal propensity to consume in India is .65 while that in U.S. is about .9. Thus‚ if we calculate the consumption expenditure then India’s total consumption would be about .7 trillion‚ China’s 2 trillion and that of U.S. more than 10 triilion. Now lets consider
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goods. The marginal utility of a good is the increase in utility that the consumer gets from consuming an additional unit of the good. Most goods are assumed to exhibit diminishing marginal utility ie. the more of a good a consumer already has‚ the lower the marginal utility derived from the consumption of an additional unit of the commodity. The table below illustrates diminishing marginal utility. Quantity of x Total utility Marginal
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thinkers hence would always choose to consume products that would give them maximum satisfaction or utility. Mankiw (2011‚ p. 6) argues that rational people ‘systematically and purposefully do the best to achieve objectives given available opportunity.’ Given a choice among alternatives and with scarce resources‚ one would evaluate the benefits and costs of consuming an extra unit of a product and would only take a decision only if marginal benefit is greater than marginal cost. In this case‚ to solve the
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d) Assuming that tax revenues are $7 billion‚ what is the value of savings? (1 mark) e) If GDP now rises to $80 billion and‚ as a result‚ the consumption of domestically produced goods rises to $58 billion‚ what is the MPCd? (i.e. marginal propensity to consume domestic goods) (2 marks) f) What is the value of the multiplier? (2 marks) g) Given an initial level of GDP of $80 billion‚ assume that spending on exports rises by $4 billion‚ spending on investment rises by $1 billion‚ while
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‘multiplier’ model: AD = Cp + Ip + G + X - M Cp = Co + c(Y-T) Ip = Io G = Go T = To + tY X = Xo M = Mo + mY where X and M are exports and imports of goods and services respectively‚ m is the marginal propensity to import‚ and all other variables have their usual meaning. (a) What is the equilibrium level of income‚ Ye‚ in terms of the parameters and exogenous variables of this model? Show this equilibrium diagrammatically and discuss the implications
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approach is the marginal utility. According to the marginal utility theory‚ consumers should benefit from consumption of an extra unit of goods or services. For example‚ let’s look at the consumption of a candy bar. Let’s say a consumer purchases a candy bar every Friday for a month. If you were to survey this individual every week we would expect to see an increase in satisfaction each week. The second point is the law of diminishing marginal utility. The law of diminishing marginal utility states
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------------------------------------------------- Chapter 34 The Influence of Monetary and Fiscal Policy on Aggregate Demand Multiple Choice 1. Shifts in the aggregate-demand curve can cause fluctuations in a. | neither the level of output nor the level of prices. | b. | the level of output‚ but not in the level of prices. | c. | the level of prices‚ but not in the level of output. | d. | the level of output and in the level of prices. | ANS: D PTS: 1 DIF: 1 REF: 21-0
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