Category: Economics

In the short run, the price elasticity of supply is generally:
Question 3 options:
More elastic than in the long run
Unchanged from the long run
Perfectly elastic
Less elastic than in the long run

➤ When might a decrease in government purchases fail to raise investment despite lower interest rates?
Investment may not rise if firms expect weak future sales, if credit conditions tighten, or during a liquidity trap when lower rates do not spur borrowing. High uncertainty, binding financial frictions, or a sharp drop in output can offset the benefit of lower interest rates and keep investment muted.

➤ Why are economies of scale different from diminishing marginal returns?
Economies of scale refer to long-run changes when all inputs vary, while diminishing marginal returns occur in the short run with at least one fixed input. Diminishing marginal returns reduce output from an additional unit of a single input. Economies of scale affect average costs and production as firm size changes.

An increase in the money supply leads to an irhmediate increase in the equilibriuminterest rate if theeffect dominates the other effects.
liquidity
price level
expected inflation
none of the above

For each scenario, shift the appropriate curve in the accompanying graph.a. The invention of a new peanut grinding machine reduces the cost of producing peanut butter.
Market for Peanut Butter