Consider a society consisting of just a farmer and a tailor. The farmer has 10 units of food but no clothing. The tailor has 40 units of clothing but no food. Suppose each has the utility function U = F1/2C1/2
If the price of clothing is always $1, and the food price is currently $3, then we can conclude A) the market is at a competitive equilibrium.
B) the price of food will drop towards a competitive equilibrium.
C) the price of food will increase towards a competitive equilibrium.
D) None of the above.
C
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The evidence with respect to the validity of Ricardian Equivalence ________
A) suggests that it matters little whether government debt is held by the central bank or by the public B) clearly provides support for the argument C) clearly refutes the argument D) is difficult to interpret, since so many factors may affect national saving
Bob gives up his factory job in order to open a bait-and-tackle shop. The earnings from his factory job represent
a. the hourly wage paid by the shop b. the marginal cost of running the shop c. the average cost of running the shop d. a fixed cost that can vary in the long run e. an implicit cost of opening the shop