The Following Image Shows the Aggregate Demand and Aggregate Supply

question 59

Multiple Choice

The following image shows the aggregate demand and aggregate supply curves of an economy. In the graph below, the rise in the price levels from P₁ to P₂ is a result of:

• A) cost-pull inflation.
• B) cost-push inflation.
• C) demand-push inflation.
• D) demand-pull inflation.
• E) induced inflation.

Recognize the mechanisms to address misaligned incentives between manufacturers and retailers.

Explain the reasons manufacturers bundle products and services.

Understand the strategies manufacturers use to enforce price discrimination.

Comprehend the role of vertical contracts in aligning incentives and their impact on prices.

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Definitions:

Expected Gain

A calculation or forecast regarding the potential benefits or profits that could be achieved in a specific situation or from a particular action.

Adverse Selection

A situation in insurance and finance where those most likely to produce negative outcomes are more inclined to select into or engage with a service, typically leading to higher costs for insurers or lenders.

Moral Hazard

The situation in which one party takes additional risks because they know they will not bear the full consequences of their actions.

Adverse Selection

A situation where sellers have more information than buyers, leading to high-quality goods and services being squeezed out of the market because they cannot be adequately priced.