On behalf of your firm, you make frequent trips to Tokyo. You notice that you always have to pay more dollars to get your hair cut than you pay in the U.S. This observation is
a. consistent with purchasing-power parity if prices in Japan are rising more rapidly than prices in the United States.
b. consistent with purchasing-power parity if prices in Japan are rising less rapidly than prices in the United States.
c. inconsistent with purchasing-power parity, but might be explained by limited opportunities for arbitrage in haircuts across international borders.
d. None of the above is correct.
a
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If the marginal propensity to consume is 0.5, what is the value of the expenditure multiplier?
a. 1.0 b. 1.5 c. 2.0 d. 0.5 e. 10.0
Suppose a monopoly has constant marginal costs of $40 per unit. Demand for the monopolist’s product is Q = 100 - 0.5P.
i. What are the profit maximizing price and quantity for this monopoly? Explain how you arrived at your answer. ii. How many units of the product would the competitive market supply? What would the equilibrium price be? Explain how you arrived at your answer. iii. Calculate how much consumer surplus would be lost if this market started off as perfectly competitive but then became monopolistic. iv. Calculate how much producer surplus would be gained if this market started off as perfectly competitive but then became monopolistic. v. Briefly explain how your answers to parts iii and iv relate to the deadweight loss created by the monopoly.