Suppose the auto industry has several investment projects with an expected rate of return of 15 percent, the aluminum industry has projects with an expected return of over 20 percent, the publishing industry has projects with an expected return of 10 percent, the steel industry has projects with an expected return of 7 percent and the rubber industry has projects with an expected return of 5 percent. The current market rate of interest is 7 percent. A reduction in the supply of funds causes interest rates to rise to 11 percent. The effect is to
A. force the firms in the automobile industry and the publishing industry to rely on funding their projects through other means.
B. cause the firms in the steel and the rubber industries to go ahead with their projects.
C. make the projects of the aluminum industry and the steel industry unprofitable; the firms in these industries will not borrow the funds or make the investments.
D. cause the firms in the steel and publishing industries to cancel their projects, which would have been funded at the old interest rate.
Answer: D
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An example of rent seeking is
a. lobbying by industrial groups. b. lawsuits between rival firms. c. battles over exclusive licenses. d. All of the above are correct.
Refer to the information provided in Figure 3.11 below to answer the following question(s).
Figure 3.11Refer to Figure 3.11. A decrease in the price of mushrooms (an input for gardenburgers) will cause a movement from Point B on supply curve S2 to
A. supply curve S3. B. Point C on supply curve S2. C. supply curve S1. D. Point A on supply curve S2.