A Consumer Price Index adjustment overcompensates for inflation because it ignores
A) the income effect when relative prices change.
B) the substitution effect when relative prices change.
C) that some goods are inferior.
D) that the substitution effect may offset the income effect.
B
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The production function shows
A) the incremental output gained by improving the production process. B) the maximum output that can be produced from each possible quantity of inputs. C) the technology used to produce output. D) the total cost of producing a given quantity of output.
Should the home country be "large" relative to its trade partners, its imposition of a tariff on imports would lead to an increase in domestic welfare if the terms of the trade rectangle exceed the sum of the
A) revenue effect plus redistribution effect. B) protective effect plus revenue effect. C) consumption effect plus redistribution effect. D) production distortion effect plus consumption distortion effect. E) terms of trade gain.