Homer and Carl receive identical pay raises from Mr. Burn\'s nuclear plant. The

Question

Homer and Carl receive identical pay raises from Mr. Burn's nuclear plant. The pay raise increases Homers demand for Duff beer but decreases Carls demand for Duff beer. We can assume that Carl is not behaving rationally. Duff it a normal good for both Carl and Homer Duff is a normal good for Curl but an inferior good for Homer. Duff is a normal good for Homer but an inferior good for Carl. Suppliers produce two goods, cheese and butter Assume that there is no cart to switch resources from cheese production to butler 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 price will go up and the quantity will drop, b The price will go up and the quantity will rise c The price will go down and the quantity will drop. The price will go down and the quantity will rise, c None of the above If the government announces today that a tax increase of 50 cents per pack of cigarettes is to of place in two weeks, what would you expect to happen today to the current market for cigarette The demand for cigarettes would increase. The demand for cigarettes would decrease. The price of cigarettes would increase. Both a) and c) arc correct c. Both b) and c) are correct.

Explanation / Answer

7. Normal goods are goods for which demand increases when income increases and decreases when income decreases.... Inferior good is a good for which demand decreases as income increases and vice versa. Here Homer's demand increases as income increases hence normal good for him... and Carl's demand decreases as income increases hence inferior good for him... Ans. d 8. Since demand for butter increases the suppliers would produce more of butter to earn more profits...leading to less resources available to produce cheese... Since supply for cheese reduces it would result in increase in price and drop in the quantity(see demand supply curve) Ans. a 9. Since the tax is increased, The price of cigarette increases and hence the demand will reduce... So..both b and c are correct... Ans e.

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