Question

In: Economics

1. In one market, supply is inelastic. In a second market, supply is elastic. An increase...

1. In one market, supply is inelastic. In a second market, supply is elastic. An increase in demand will cause the equilibrium price to change by ______________ and equilibrium quantity to change by ______________ in the first market than in the second market.

a more: more

b less; more

c less; less

d more; less

e not change because supply is inelastic

2. One market has an elastic demand for the good. In a second market, the demand is inelastic. Everything else is the same in the two markets. An increase in supply, will ______________ the equilibrium quantity the most in the ______________ market.

a increase; first

b decrease; first

c increase; second

d decrease; second

e increase; we cannot tell in which market the change will be the greatest, it depends upon the elasticity of supply

3. Consider two goods. The first makes up a large part of one’s spending; the second, a small part. The first does not have many substitutes, while the second has quite a few. What is likely true about the elasticity of demand of the first good compared to that of the second?

a the demand for the first good is likely to be more inelastic

b the demand for the first good is likely to be more elastic

c one cannot tell as the larger portion of spending makes demand elastic and the lower number of substitutes makes demand inelastic.

d one cannot tell as the larger portion of spending makes demand inelastic and the lower number of substitutes makes demand elastic.

4. If buyers and sellers both expect prices to rise, what will happen to quantities sold?

a The equilibrium quantity will decrease.

b The equilibrium quantity will increase.

c The equilibrium quantity will be unlikely to change.

d The equilibrium quantity could decrease, increase, or remain the same.

5. An increase in the cost of producing GM SUVs will be most likely to cause which of the following to happen to the prices of Toyota SUVs?

a The price of Toyota SUVs will not change.

b The price of Toyota SUVs will increase.

c The price of Toyota SUVs will decrease.

d One cannot tell what will happen to the price of Toyota SUVs.

Expert Solution

1) (e) not change because supply is inelastic

As in the condition where supply is inelastic in the first market, then change in demand does not affect the equilibrium quantity. There are changes only in the equilibrium price as demand decreases or increases.

2) (a) increase ; first

As the increase in supply will reduce the prices and thus, increase the equilibrium quantity in the first market where the market has an elastic demand for the good.

3) (a) the demand for the first good is likely to be more inelastic

As the consumer is using a larger part of its spending on the good and it does'nt have many other substitutes too.

4) (d) The equilibrium quantity could decrease, increase, or remain the same

As depending upon the type of good and elasticity of demand and supply the equilibrium quantity will react.

5) (a) The price of Toyota SUVs will not change

As an increase in the cost of production of GM SUV's, its market prices will increase, but the prices of Toyota SUV's won't be affected by this. Though in comparison it can be more or less than GM SUV's price.

Rahul Sunny answered 2 years ago

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