Which of the following might cause the inflation rate to spike up sharply?
(A) Prices on world oil markets rise steeply due to war in the Middle East.
(B) Plentiful rainfall and moderate temperatures result in good harvests of wheat and soybeans.
(C) The purchasing power of the average consumer decreases due to a sluggish economy.
(D) The items in the CPI market basket change to account for changing consumer buying habits.
Ans: (A) Prices on world oil markets rise steeply due to war in the Middle East.
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In the long run, new firms can enter an industry and so the supply elasticity tends to be:
A. more elastic than in the short run. B. less elastic than in the short run. C. perfectly inelastic. D. perfectly elastic.
The cost-plus-markup theory of price setting
A) explains why firms can't raise their prices until their costs rise. B) explains why percentage markups vary. C) is consistent with what many sellers say about how they set their prices. D) takes demand into account in explaining relative prices.