Borem is a big fan of wine from Trader Moe's. Moe's sells a high-quality expensive wine and a cheap low-quality wine. Borem buys both types but tends to buy more bottles of the cheaper wine
Borem later moves to a new city where he must drive a long distance to get his wine at Trader Moe's. Assuming the income effect is small, and that Borem still buys his wine from Moe's, how is he going to change his relative consumption of the expensive and cheap wines?
The driving represents a fixed cost added to the price of each wine. As a result of the fixed cost, the relative prices have changed, making the expensive wine relatively cheaper than before. He will thus buy more of the expensive wine and less of the cheaper wine.
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How will an interest rate decrease in the United States affect equilibrium in the foreign exchange market?
A) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded will increase. B) The equilibrium exchange rate will increase, and the equilibrium quantity of dollars traded cannot be determined. C) The equilibrium exchange rate cannot be determined, and the equilibrium quantity of dollars traded will increase. D) The equilibrium exchange rate will decrease, and the equilibrium quantity of dollars traded cannot be determined.
Which of the following could increase unemployment and inflation simultaneously?
A) a decrease in the real wage B) an increase in oil prices C) expansionary monetary policy D) contractionary monetary policy