Why is it that the industry demand curve slopes downward when the demand curves faced by individual firms in perfectly competitive markets are horizontal?
What will be an ideal response?
Every firm in a competitive market is so small that it can increase production without affecting the price of the good. Therefore a firm in a perfectly competitive market faces a perfectly elastic demand curve. The market demand curve is downward-sloping, which reflects the law of demand: consumers will purchase higher quantities of a good at lower prices and lower quantities at higher prices.
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A decrease in the discount rate will
A) have an unclear effect on the money supply. B) decrease the money supply. C) increase the money supply. D) not affect the money supply.
If disposable income increases by $100 and consumption increased by $85, ceteris paribus, we may conclude that
A) the marginal propensity to consume is 0.85. B) the marginal propensity to consume is 0.15. C) $15 is autonomous consumption. D) a change in disposable income is induced by a change in consumption.