Question

3. Tastes change so that demand for a product falls. At the same time tax rates on the product paid by the producers were lowered. Given that output increased and prices fell as a result, which change had the largest effect? a It is impossible to tell. b The change in tastes c The change in taxes. d They were likely about the same size.

4. Supply decreases in a market and demand increases. The price in the market will: a increase b decrease c not change d could either increase or decrease

5. Suppose a group of competitive producers can produce two different goods (shovels and hammers) with basically the same resources. Most are currently producing many shovels and fewer hammers. The demand for hammers increases. What is likely to happen in the market for shovels? a The equilibrium quantity will increase; the equilibrium price will decrease. b The equilibrium quantity will decrease; the equilibrium price will increase. c The equilibrium quantity will increase; the equilibrium price will increase. d The equilibrium quantity will decrease; the equilibrium price will decrease. e Nothing will likely change in the shovel market.

Answer 1

3. Given that output increased and prices fell as a result, which change had the largest effect :

c. The change in taxes
Reason - Since the changes in preference and taxes has caused the output to increase whereas the prices to fall, the effect of change in supply side will be more than the demand. This means the supply curve will shift more than the demand curve. That is why, the effect of change in taxes is more.

4. Supply decreases in a market and demand increases. The price in the market will:

a. Increase
Reason - As the supply decrease, the availability of the particular goods and services declines in a market. With an increase in demand of the same good or service, the price in the market will increase to compensate for the shortage of supply in the economy and to control the growing demand.

5. . . . The demand for hammers increases. What is likely to happen in the market for shovels?
d The equilibrium quantity will decrease; the equilibrium price will decrease.
Reason - The equilibrium quantity will decrease as the demand for shovels fall while the supply remains constant. And, the equilibrium price will also decrease as their is a surplus quantity of shovels with little demand.