Explanation

• Marginal utility theory explains satisfaction from consuming goods.
• As a person consumes less of a good, each unit becomes more valuable.
• This follows the law of diminishing marginal utility (reverse case).
• Scarcity of a liked good increases its importance.
• Therefore, marginal utility rises when consumption decreases.

Last verified on 22-04-2026

Explanation

• The Lerner index measures monopoly power.
• It shows how much price exceeds marginal cost.
• When demand is more elastic, consumers are more sensitive to price.
• Firms cannot charge high markups in this case.
• So, the Lerner index becomes lower.

Last verified on 22-04-2026

Explanation

• A recessionary gap occurs when actual output is below potential output.
• There is excess supply of labour → unemployment is high.
• In the long run, wages adjust downward.
• Lower wages reduce costs and shift supply.
• This leads to falling prices and falling unemployment.

Last verified on 22-04-2026

Explanation

Firm hires until: Price × MP of labor = Wage  

10 × (1/L) = 1  

10/L = 1  

L = 10  

So the firm will hire 10 units of labour.

Last verified on 22-04-2026

Explanation

• GDP ↑ → Income ↑
• Imports (M) ↑ due to higher consumption
• Exports (X): not dependent on domestic GDP directly
• Government spending (G): policy decision
• Model: C + I + G + (X − M)

Last verified on 22-04-2026