The Price of Milk Increases Dramatically,causing a 0

question 85

Multiple Choice

The price of milk increases dramatically,causing a 0.5 percent increase in the CPI.The price increase will most likely cause the GDP deflator to increase by

• A)more than 0.5 percent.
• B)less than 0.5 percent.
• C)0.5 percent.
• D)None of the above is correct;this particular price increase will not affect the GDP deflator.

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Definitions:

Demand Curve

A chart that illustrates how the price of a product correlates with the amount consumers are ready to buy at different price levels.

Perfectly Competitive

A market structure characterized by many buyers and sellers, all of whom are producing identical products, leading to no single participant having control over the price.

Perfectly Competitive

A market structure characterized by a large number of small firms, a homogeneous product, and freedom of entry and exit, leading to price taking behavior by all firms.

Long-run Equilibrium

Describes a state in a market where supply equals demand, with sufficient time for all factors of production to adjust and no external pressures.