Question

29.) Over time, technological improvement lowers the cost of producing smartphones and also raises buyers’ incomes. Assume that smartphones are normal goods. As a result, the supply of smartphones will (increase, decrease) and the demand for smartphones will (increase, decrease). We would expect the equilibrium quantity of cellphones bought and sold will (increase, decrease, stay the same), while the price of smartphones could rise, fall, or stay the same. (6 points; 2 points each)

30.) When a hurricane accompanied by massive rainfall and flooding occurs, what would happen to the demand for bottled water, the supply of bottled water, and the price of a bottle of water? a.) The demand for bottled water would (increase, decrease, stay the same). (1 point) b.) The supply of bottled water would (increase, decrease, stay the same). (1 point) c.) The price of bottled water would (increase, decrease, stay the same). (1 point)

51.) True or False? In the absence of externalities and market power, perfectly competitive markets maximize total surplus. (2 points)

52.) True or False? When a competitive market is in equilibrium, it is not possible to increase total surplus by reallocating goods among buyers, by reallocating responsibility for production among sellers, or by changing the quantity produced. (2 points)

Answer 1

29.) Over time, technological improvement lowers the cost of producing smartphones and also raises buyers’ incomes. Assume that smartphones are normal goods. As a result, the supply of smartphones will increase and the demand for smartphones will increase. We would expect the equilibrium quantity of cellphones bought and sold will increase, while the price of smartphones could rise, fall, or stay the same.
Explanation: lowering of input costs leads to rightward shift of supply curve. Increase in income leads to rightward shift of demand curve for normal goods.

30.) When a hurricane accompanied by massive rainfall and flooding occurs, what would happen to the demand for bottled water, the supply of bottled water, and the price of a bottle of water?
a.) The demand for bottled water would increase
b.) The supply of bottled water would stay the same.
The price of bottled water would increase.
Explanation: Due to the natural disaster, people may face water supply issues at home and thus demand more packaged water. However, in the short run the supply of packaged water would be fixed. This would then result in higher price of packaged water.

51.) In the absence of externalities and market power, perfectly competitive markets maximize total surplus. (2 points)
True.
This is the First Welfare Theorem.