If the actual price level is less than the expected price level reflected in long-term contracts, O a. firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied O b. firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied O c. resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied O d. unemployment will increase in the short run as firms will substitute labor with capital inputs e. firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question
100%
**Economic Concepts Quiz Question:**

*Price Levels and Production Decisions*

---

**Question:**

If the actual price level is less than the expected price level reflected in long-term contracts, _____.

**Options:**

  - a. Firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied.

  - b. Firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied.

  - c. Resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied.

  - d. Unemployment will increase in the short run as firms will substitute labor with capital inputs.

  - e. Firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied.

---

Please select the most accurate answer based on your knowledge of economic concepts and principles. This question tests understanding of how deviations in price levels from expectations can influence firm behavior and market outcomes.

---

**Graph/Diagram Explanation:**

There are no graphs or diagrams associated with this question. The provided content consists solely of a multiple-choice question related to economic theory. If graphs or diagrams were included, they would provide visual aid to better understand the impact of price level deviations on economic factors such as output, profitability, and resource supply.
Transcribed Image Text:**Economic Concepts Quiz Question:** *Price Levels and Production Decisions* --- **Question:** If the actual price level is less than the expected price level reflected in long-term contracts, _____. **Options:** - a. Firms will find production more profitable in the short run than they had expected and will decrease the quantity of output supplied. - b. Firms will find production more profitable in the short run than they had expected and will increase the quantity of output supplied. - c. Resource owners will earn higher returns in the short run than they had expected and will decrease the quantity of resources supplied. - d. Unemployment will increase in the short run as firms will substitute labor with capital inputs. - e. Firms will find production less profitable in the short run than they had expected and will decrease the quantity of output supplied. --- Please select the most accurate answer based on your knowledge of economic concepts and principles. This question tests understanding of how deviations in price levels from expectations can influence firm behavior and market outcomes. --- **Graph/Diagram Explanation:** There are no graphs or diagrams associated with this question. The provided content consists solely of a multiple-choice question related to economic theory. If graphs or diagrams were included, they would provide visual aid to better understand the impact of price level deviations on economic factors such as output, profitability, and resource supply.
**Understanding Economic Potential Output**

An economy’s potential level of output can be altered by changes in:

- **a. aggregate demand.**
- **b. its stock of capital.**
- **c. the expected price level.**
- **d. the actual price level.**
- **e. real GDP.**

This information illustrates key factors that can influence an economy's productive capacity. Studying these elements helps us understand how economies grow and respond to different economic policies and conditions.

- **Aggregate Demand**: Total quantity of goods and services demanded across all levels of an economy at a particular price level and within a set period.
- **Stock of Capital**: Sum of physical assets that a firm or economy can use to produce goods or services.
- **Expected Price Level**: Predictions about the average change in prices of goods and services.
- **Actual Price Level**: Current price state within the economy.
- **Real GDP**: Gross Domestic Product adjusted for inflation, representing the value of all finished goods and services produced within a country's borders in a specific time period.

Each of these factors can interact with one another to either constrain or boost an economy’s potential output, which is crucial for planning economic policies and understanding market dynamics.
Transcribed Image Text:**Understanding Economic Potential Output** An economy’s potential level of output can be altered by changes in: - **a. aggregate demand.** - **b. its stock of capital.** - **c. the expected price level.** - **d. the actual price level.** - **e. real GDP.** This information illustrates key factors that can influence an economy's productive capacity. Studying these elements helps us understand how economies grow and respond to different economic policies and conditions. - **Aggregate Demand**: Total quantity of goods and services demanded across all levels of an economy at a particular price level and within a set period. - **Stock of Capital**: Sum of physical assets that a firm or economy can use to produce goods or services. - **Expected Price Level**: Predictions about the average change in prices of goods and services. - **Actual Price Level**: Current price state within the economy. - **Real GDP**: Gross Domestic Product adjusted for inflation, representing the value of all finished goods and services produced within a country's borders in a specific time period. Each of these factors can interact with one another to either constrain or boost an economy’s potential output, which is crucial for planning economic policies and understanding market dynamics.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Knowledge Booster
Federal Budget
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education