Category: Economics

➤ Why use the GDP deflator instead of the CPI for economy-wide prices?
The GDP deflator covers all final goods and services produced domestically and adjusts weights as production patterns change. CPI measures a fixed consumer basket and includes imports. Use the deflator for broad, production-based inflation and national-account adjustments; CPI better captures household cost-of-living changes.

Suppose the market is in equilibrium. If government imposes either a price ceiling or a price floor that is binding, then the market will sell a smaller quantity.
Options
True
False

➤ When should I use the midpoint (arc) method instead of the simple percent change?
Use the midpoint method for large price or quantity changes to avoid base‑dependence and get a symmetric elasticity. For small or marginal changes, the simple percent-change formula is an adequate approximation. The midpoint formula averages starting and ending values for more consistent elasticity estimates.

➤ Why might we get closer to the frontier without the frontier moving?
Getting closer to the frontier happens when idle resources become active. Firms reallocate labor and use existing capital more fully, so output rises. The economy becomes more efficient but its maximum productive capacity stays the same. The PPF moves only if the economy’s resources or technology expand.