Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect an increase in foreign output (Y*) will have on output, exports, imports, and net exports. Clearly label all curves and clearly label the initial and final equilibria
What will be an ideal response?
An increase in foreign income, Y*, will cause an increase in exports (the NX curve shifts up) and an increase in demand. As demand rises, Y will increase causing a rise in C and S. As Y increases, imports will increase as well. As shown in the text, the increase in imports will be less than the rise in exports. So, NX will be higher.
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Assume foreign beer is a normal good. If the incomes of demanders decreases,
A) the demand for foreign beer will increase. B) the quantity supplied of foreign beer will increase. C) the market output of foreign beer will increase. D) all of the above will occur. E) none of the above will occur.
Customers are usually more willing to pay more for the first unit of a good they purchase than for the second, third, or subsequent units. This implies that
A) typical consumers are irrational. B) firms are using non-linear price discrimination. C) firms are unable to determine their customers' reservation prices. D) typical consumers have a downward sloping demand curve.