Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold. What is the elasticity of demand facing Fantastic Cuts?

Refer to Figure 5-5. If, because of an externality, the economically efficient output is Q2 and not the current equilibrium output of Q1, what does D1 represent?

A) the demand curve reflecting social benefits B) the demand curve reflecting the sum of private and social benefits C) the demand curve reflecting private benefits D) the demand curve reflecting external benefits

The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S. economy starting in August of 2007. Which of the following is TRUE of the United Kingdom's experience?

A) The increase in the price of oil immediately shifted the AS curve to the left. B) The financial crisis did not take hold right away so the AD curve did not immediately shift. C) Eventually, the Lehman Brothers bankruptcy caused a negative demand shock leading to a further fall in output and an increase in the unemployment rate. D) All of the above. E) None of the above.