Consider the Following Two Events: (I) an Increase in the Cost

question 2

Multiple Choice

Consider the following two events: (i) an increase in the cost of new capital goods; and (ii) a decrease in corporate income tax rates. How will these events affect the demand for investment?

• A) The demand for investment increases.
• B) The demand for investment decreases.
• C) The two events have opposite effects on investment. Therefore, the demand for investment remains the same.
• D) These events have an indeterminate effect on the demand for investment.

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Definitions:

Marginal Cost

The supplementary expense incurred from manufacturing one more unit of a good or service.

Price

The amount of money expected, required, or given in payment for something.

Price Rigidity

Characteristic of oligopolistic markets by which firms are reluctant to change prices even if costs or demands change.

Demand Curve

Depicts how the quantity demanded of a commodity varies with its price, commonly shown as a downward-sloping line on a graph, reflecting the inverse relationship between price and quantity demanded.