Question

In the week before Valentine’s Day there is an increase in the supply of flowers in the supermarkets and there is an increase in the demand for flowers. We can expect the price of flowers to ___ and the quantity of flowers sold to ___.

Country A can produce different combinations of pie and cake with their resources, as indicated in the table.

Pie	Cake
0	90
10	80
20	60
30	35
40	0

If Country A is currently producing 20 pies, what is the opportunity cost of producing one more pie? Enter a number and round to two decimal places.

A tax on sweetened carbonated beverages causes people to purchase less of these items. Which principle of economics does this example best illustrate?

- There is no such thing as a free lunch

- People face tradeoffs

- People think at the margin

- People respond to incentives

Answer 1

1) As the demand for flowers increases for valentine's day, the price of flowers are highly likely to increase as well. Also the quantity of flowers sold is to increase, as the supply of flowers has increased during the weeks before valentine's day.

2) The country is producing 20 units of pie currently. From the given combinations, the country has to produce a bundle of pies and cakes of ( 20 , 60 ) respectively. Thus we know that the country is producing 60 units of cakes.

Pies	cakes
20	60
1	X (variable)

Now, if we were to cross multiply, we get : 20x = 60(1)

x = 60 /20 = 3

Therefore the opportunity cost of producing 1 more unit pie is 3 units of cake.

3) People face trade-offs

Trade-off refers to the quantity of goods and services sacrificed or foregone intentionally in efforts to acquire more units of another commodity.

A tax on soda or carbonated beverages increases it's price level. This thus induces the consumers to consume less of the commodity as the marginal utility of money is not equal to the utility derived from consuming one more unit of the beverage, as the drink is much more expensive and that people are capable and are in a position to substitute the commodity with a cheaper alternative yet derive similar utility.

The existence of trade-offs induces consumers to derive maximum utility, yet pay minimal price.