A price ceiling of $8 placed on the market in the graph shown:
A. is binding, and causes a surplus.
B. is non-binding, and does not affect the market.
C. is non-binding, and does not prevent the market from reaching equilibrium.
D. is binding, and causes a shortage.
Answer: D
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If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:
a. risen from $25 to $50. b. fallen from $50 to $25. c. risen from $5,000 to $10,000. d. fallen from $10,000 to $5,000. e. risen from $1,000 to $5,000.
Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because
a. new goods and services are always of higher quality than existing goods and services. b. new goods and services cost less than existing goods and services. c. new goods and services cost more than existing goods and services. d. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.