What role does the price elasticity of demand play in markup pricing, i.e., how does it affect the firm's ability to mark up price over marginal cost?
What will be an ideal response?
The price elasticity of demand acts as a constraint on the firm's ability to mark up price over the marginal costs of production. To be specific, the magnitude of the markup a firm can apply to marginal cost in setting price is inversely related to the price elasticity of demand for the item.
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A consumer purchases housing (H) and spends the remainder of income on the composite good (C). The government is considering one of two policies. Policy A taxes housing by $50 per unit consumed
With the tax in place, the consumer purchases 100 units of housing. Policy B collects a lump-sum tax of $5,000 from the consumer's income. Compare the effects of the policies on the consumer's utility/well-being and the amount of housing and composite goods purchased.
According to the rational expectations school, expansionary fiscal policy is harmful to the economy, but expansionary monetary policy can be effective when the Fed tries specific targeting
Indicate whether the statement is true or false