What are signals? How do profits function as signals?
What will be an ideal response?
Signals are compact ways of conveying to economic decision makers information needed to make decisions. A signal not only conveys information, but also provides the incentive to react appropriately. Economic profits are such signals because they indicate to entrepreneurs where they should operate and provide the incentive in that the entrepreneurs' incomes are increased when they respond to the signals.
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The expectations theory and the segmented markets theory do not explain the facts very well, but they provide the groundwork for the most widely accepted theory of the term structure of interest rates
A) the Keynesian theory. B) the separable markets theory. C) the liquidity premium theory. D) the asset market approach.
The cross-price elasticity of demand for peanut butter with respect to the price of jelly is -0.3. If we expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut butter?
A) +15% B) +45% C) +4.5% D) -4.5%