Which of the following correctly describes the ceteris paribus assumption?
a. If we increase the price of a good, reduce consumer incomes, and lower the price of substitutes, and if quantity demanded is observed to fall, we know that the price increase caused that decline in quantity demanded.
b. If the federal government increases government spending, and the Federal Reserve Bank lowers interest rates, we know that the increase in government spending caused unemployment to fall.
c. If we decrease the price of a good and observe that there is an increase in the quantity demanded, holding all other factors that influence this relationship constant.
d. If a company reduces its labor costs, negotiates lower materials costs from its vendors, and advertises, we know that the reduced labor costs are why profits are higher.
c
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A perfectly competitive market is in long-run equilibrium. At present there are 100 identical firms each producing 5,000 units of output. The prevailing market price is $20. Assume that each firm faces increasing marginal cost
Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $24. Which of the following describes the effect of this increase in demand on a typical firm in the industry? A) In the short run, the typical firm increases its output and makes an above normal profit. B) In the short run, the typical firm increases its output but its total cost also rises, resulting in no change in profit. C) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases. D) In the short run, the typical firm increases its output but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.
The introduction of sweep accounts
A) was an open market purchase. B) was a failure. C) had no effect. D) caused a reduction in the demand for money.