Suppose That Storage Costs Increase,so That Firms Decide to Hold

question 36

Multiple Choice

Suppose that storage costs increase,so that firms decide to hold less output in inventory,other things constant.Which of the following is true?

• A)consumption spending will increase
• B)consumption spending will decrease
• C)investment will increase
• D)investment will decrease
• E)GDP for this year is not affected

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Definitions:

Marginal Cost

Marginal cost is the change in total cost that arises when the quantity produced is incremented by one unit.

Product-variety Externality

The impact on consumers and producers resulting from an increase or decrease in the variety of products available in the market.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer Surplus

The amount a seller is paid for a good minus the seller’s cost of providing it.