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For this assignment you will Indicate whether each of the following statements is TRUE, FALSE, or UNCERTAIN and EXPLAIN WHY. (If you do not do a good job explaining your responses, you do not get any credit.)
1. “Zimbabwe experienced hyperinflation. All prices were going up at astronomical rates, including the price of water. Therefore, it was very much in the interest of businesses to conserve on their use of water.”
2. “The child’s parents wanted the child to pass the proficiency tests at each level to certify that the child is very competent at playing piano. The 10-year-old child does have talent and has passed the tests for Level 5 already. If, in a few years, the child passes the tests for Level 10, it will demonstrate that the child is extremely capable – as good as many adult performers. Some prestigious universities would give substantial weight in their admission decisions to the child’s talents. However, the child hates practicing, and often whines and screams when asked to play. The piano practices are taking time away from normal schoolwork and other activities. The household is often a quite miserable place with all the arguing going on, so now the child and one of the parents want the child to quit piano, but the other parent points out that several years have already been invested. It would be a huge mistake to quit now.”
3. “If a company has a building that has already been paid for, then aside from property taxes, utilities, and maintenance, it has facilities that are cost-free.”
4. “If the price of a product goes up, the demand decreases.”
5. “If income decreases, the demand for a product decreases.”
6. “If the supply of a product increases, its price will fall, and the quantity demanded will increase.
7. “It the price of a good related to Good X increases, then the demand for Good X will increase.”
8. “If the demand and supply for Good X increase at the same time, the equilibrium quantity will increase, but the impact on the equilibrium price is uncertain.”
9. “If rent control is imposed, the DEMAND for apartments will increase.”
10. “Price controls can cause shortages, but not surpluses.”
11. “If a company is not making very much money it should raise its prices.”
12. “The golf course found that when it lowered the price for playing a round of golf, it also sold a lot more merchandise at its gift shop. Thus, the cross-price elasticity between the merchandise and playing golf at the course is positive; playing golf and buying the merchandise are substitutes.”
13. “In the case of a positive network effect, the market demand for the product is likely to be quite inelastic as compared to the case where no network effect exists.
14. “When McDonald’s experimented with a price of $3 for Big Macs, they sold about as many as they did at a price of $2.49, so at $2.49 consumers were obviously enjoying a lot of consumer surplus.”
15. “If a firm doubles its use of both capital and labor, but production less than doubles, it means that there were diminishing returns.”
16. “If the average product of labor is rising, the marginal product of labor must also be rising.” (If you do not do a good job explaining your responses, you do not get any credit.)