Question
(a) The New York Times reports that the toll on the Holland Tunnel was raised from $16 to $20. Following the toll increase, traffic fell
(a) The New York Times reports that the toll on the Holland Tunnel was raised from $16 to $20. Following the toll increase, traffic fell by 5 percent. The chairman of the Port Authority (which operates the tunnel) audit committee warned that the toll increase could cause toll revenues to decrease by $48 million per year. Is this statement consistent with economic theory?
(b) Investors have traditionally viewed gold commodities as a good investment for wealth preservation in times of inflation. If investors are increasingly worried about inflation, what do you expect will happen to the price of gold? How does your answer change if you learn that a recently discovered gold mine might substantially increase the supply of gold?
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