1. A. Assumecarsandgasolinearecomplements.Whenthepriceofgasoline goesup,whichof
ID: 1164418 • Letter: 1
Question
1.
A. Assumecarsandgasolinearecomplements.Whenthepriceofgasoline goesup,whichof the following will happen to the market forcars?
a. The equilibrium price of cars will increase.
b.The equilibrium quantity of cars will decrease.
c. The supply curve for cars will shift to the right.
d. The demand curve for cars will shift to the right.
B. Suppliers produce two goods, cheese and butter. Assume that there is no cost to switch resources from cheese production to butter production and vice versa. Suppose the demand for butter increases. What do we expect to happen to the equilibrium in the market for cheese?
a. the supply of cheese will increase
b. the supply of cheese will decrease
c. the demand for cheese will increase
d. Both a) and c) are correct
C. If the government announces today that a tax increase of 50 cents per pack of cigarettes is to take place in two weeks, what would you expect to happen today to the current market for cigarettes?
a. The demand for cigarettes would increase.
b. The demand for cigarettes would decrease.
c. The price of cigarettes would increase.
d. Both a) and c) are correct.
D. If bread is an inferior good, then what will happen in the market for bread as the consumer income increases?
a. The equilibrium quantity will increase.
b. The equilibrium quantity will decrease.
c. The price will fall.
d. Both b) and c) are correct.
E. Which macroeconomic time period would be the best time to sell inferior goods in the USA?
a. booming economy of 2004-2007
b. uncertain times of 2010-2012
c. difficult times of the Great Depression 1930-1935
d. growing era of the baby boom, 1948-1960
Explanation / Answer
a) "B"
When the price of the gasoline goes up the demand for cars will go down because the cars are costlier now.
b) "B"
As the same resources are used to produce goods it will be switched and the supply of cheese will go down.
c) "D"
the demand for cigarettes will increase and it will also increase the price of cigarettes.
d) "D"
With a higher income, the demand for bread will decrease and it will result in a fall in the quantity and price.
e) "C"
lower income = higher demand for inferior goods.
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