The price of lemons increases. At the same time, we see the price for ice tea ri

Question

The price of lemons increases. At the same time, we see the price for ice tea rise. How does this affect your 8 year old neighbor's market for lemonade at his lemonade stand?

Select one

a. The demand curve will shift to the left; the supply curve will shift to the left

b. The demand curve will shift to the left; the supply curve will shift to the right

c. The demand curve will shift to the right; the supply curve will shift to the left

d. The demand curve will shift to the right; the supply curve will shift to the right

The most important advantage of capitalism is

Select one:

a. Generates wealth with the help of government intervention

b. That prices assists in moving assets from high valued to low value uses

c. It forces involuntary exchanges

d. Creates wealth by letting a person follow his or her own self-interest

Suppose a recent and widely circulated medical article has reported new benefits of cycling for exercise. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will _________ and the quantity will _________.

Select one:

a. rise, rise

b. rise, fall

c. fall, rise

d. fall, fall

Which is NOT an “discrete” decision?

Select one:

a. Decision to broaden the firm’s market area

b. Decision to expand the product line with a new product

c. Decision to consolidate two production facilities into one facility

d. Decision to invest in developing a new technology

Why might a supermarket advertise low prices on certain high profile items and sell them at a loss?

Select one:

a. It is a way for companies to be charitable.

b. The store will sell other groceries to the same customers, often at a markup.

c. They would not.

d. This reduces the incentives of trade.

Explanation / Answer

1. Lemonade and ice tea can be considered as substitutes. If the price of ice tea increases the consumers will shift to lemonade which is now relatively cheaper. So the demand for the Lemondae will go up, price of lemonade remaining constant. The demand curve will shift to the right. Increase in the price of lemons will lead to highher supply of lemons. Supply curve will shift to the right.

2.In capitalism the wealth is created by the capitalist by pursuing their own self interest. Adam Smith said that if everyone pursues his own self-interest the economy will aggregately benefitted.

3. The price of the parts needed to make bikes falls. Parts of bike are complementary goods, rise of which will shift the demand for bikes to the left. Increase in the parts' prices will increase the supply and reduce the demand If the change in supply is greater than the change in demand, the price will fall and the quantity will rise.

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