If the Supply Curve for Aspirin Is Perfectly Elastic, a Reduction

question 178

Multiple Choice

If the supply curve for aspirin is perfectly elastic, a reduction in demand will cause the equilibrium price to:

• A)rise and the equilibrium quantity to fall.
• B)rise and the equilibrium quantity to stay the same.
• C)fall and the equilibrium quantity to fall.
• D)stay the same and the equilibrium quantity to fall.
• E)fall and the equilibrium quantity to stay the same.

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Definitions:

Compounded Annually

This term refers to the process of adding interest to the principal sum of a loan or deposit, or in other words, interest on interest, with the effects of compounding happening once per year.

Present Values

The value today of a future sum or series of cash payments, calculated using a particular rate of return, for the purpose of discounting and assessing investment options.

Discount Rate

The discount rate applied in the discounted cash flow (DCF) methodology to calculate the current value of anticipated cash flows, considering the time value of money and associated risks.

Present Value

The current price of a future sum of money or stream of cash flows, discounted at a certain rate of return.