According to the life-cycle hypothesis, if a person received a payment roughly equal to her current annual income, her consumption would:
a. roughly double
b. increase but not as much as the increase in income
c. increase by more than the increase in income
d. would increase at all
e. none of the above
Ans: b. increase but not as much as the increase in income
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If quantity demanded for rice decreases by 4% when the price of rice increases by 8%, we know that the price elasticity of rice is equal to:
a. -2.5 b. -0.5 c. -2.0 d. -0.4
A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect
a. the value of a good to society, but not the cost of making it. b. the cost of making a good to society, but not its value. c. both the value of a good to society and the cost of making it. d. neither the value of a good to society nor the cost of making it.