Question

1. Suppose there is an electric bike shop that faces the following demand function
Q = 250 - .25p + 4ps, where Q is the quantity of e-bikes, p is the price of an e-bike, and ps is
the price of a scooter. How much of a change in p must occur for Q to increase by one?
A) fall by 25¢
B) fall by $4
C) increase by 25¢
D) fall by $4.25

2. Suppose there is a market for electronic bikes that is currently at equilibrium. If the
demand curve were to shift right, this would cause
A) an increase in price but a decrease in quantity.
B) a decrease in price but an increase in quantity.
C) an increase in both price and quantity.
D) a decrease in both price and quantity.

3. Suppose there is a market for electronic bikes that is currently at equilibrium. If the
consumers of electronic bikes had an increase in income which resulted in a rightward
parallel shift of the demand for electronic bikes, then at any given price, the price elasticity of
demand will have
A) increased in absolute terms.
B) decreased in absolute terms.
C) remained unchanged.
D) increased, decreased or stayed the same. It cannot be determined.

4. Suppose Bob consume goods “x” and “y” and his preferences for both goods are
represented by convex indifference curves. This implies that Bob is willing to
A) give up more "y" to get an extra "x" the more "x" they have.
B) give up more "y" to get an extra "x" the less "x" they have.
C) settle for less of both "x" and "y".
D) acquire more "x" only if they do not have to give up any "y".

5. Suppose Bob has a marginal utility of electronic bikes equal to 1000 and his marginal
utility of scooters equal to 200, then we know that
A) his indifference curves are convex.
B) his indifference curves are L-shaped.
C) his indifference curves are linear.
D) his indifference curves are downward sloping.

Answer 1

Q-1) suppose there is an electric bike shop that faces following the demand function

Q = 250 - .25p + 4ps. Where Q is the quantity of e-bikes, p is the price of an e-bikes and ps is the price of the scooter.

There is a negative relationship between price and quantity , when quantity increased by some amount then the price will fall some amount. The negative sign implies the negative relationship between price and quantity.

A) So the correct answer will be fall by 25¢ - change in price will change in quantity. If there is changing in quantity by one then price will fall by 25¢ because demand curve is negatively sloped and negative sign implies the relationship between price and quantity.

B) The incorrect answer will be fall by $4 - in the above function there is a positive sign with price of scooter and quantity.

C) The incorrect answer will be increased by 25¢ - in the above function there is negative sign between price of e-bikes and quantity

D) The incorrect answer will be fall by $4.25 - there is no mentioned any amount of this price.

Q-2) suppose there is a market for electronic bikes that is currently at equilibrium, if the demand curve were to shift the right this would cause increase in both the price and quantity.

A) So the incorrect answer will be the increase in price and decrease in quantity - if the demand shift to the right then equilibrium also be shifted to the right and increase in both the price and quantity

B) the incorrect answer will be the decrease in price and increase in quantity - ​​​​​​price will also increase if demand curve shift to the right

C) the correct answer will be the increase in both price and quantity - if demand curve shift to the right equilibrium also increase and price and quantity also increase

D) the incorrect answer will be a decrease in both the price and quantity - again this is not the case where demand curve is shift to the left or something

Q-3) Suppose there is a market for electronic bikes that is currently at equilibrium. If the
consumers of electronic bikes had an increase in income which resulted in a rightward
parallel shift of the demand for electronic bikes, then at any given price, the price elasticity of
demand cannot be determined because there is no mentioned any elasticity of demand curve like inelastic or elastic demand curve so we cannot say it will be incresead or decreased or unchanged

so the correct answer will be -

D) increased, decreased or stayed the same. It cannot be determined

Q-4) Suppose Bob consume goods “x” and “y” and his preferences for both goods are
represented by convex indifference curves.And they follow the law of diminishing marginal rate of substitution. They are also negatively sloped.

A) so the incorrect answer will give up more "y" to get an extra "x" the more "x" they have - if it happens then the two goods will be perfect substitute and concave to the origin.

B) the correct answer will be give up more "y" to get an extra "x" the less "x" they have- they follow the diminishing marginal rate of substitution so give up more y to get x at a lesser amount.

C) the incorrect answer will be settle for less of both "x" and "y"- indifference curves shows the combination of two goods where you have to sacrifice one good to get extra amount of the Other good.

D) the incorrect answer will be acquire more "x" only if they do not have to give up any "y"- this will not happen in indifference curve you have tk sacrifice some amount of the other good  

Q-5) Suppose Bob has a marginal utility of electronic bikes equal to 1000 and his marginal
utility of scooters equal to 200. This two goods are perfect substitute so the indifference curve will be straight line.
A) so the incorrect answer will be his indifference curves are convex - this twogoods are perfect substitute so indifference curve will be straight line.
B) the incorrect answer will be his indifference curves are L-shaped - where two goods are complementary then curve will be L- shaped. But in this case the two goods are perfect substitute
C) the correct answer will be his indifference curves are linear - perfect substitute goods have a straight line indifference curve.
D) the incorrect answer will be his indifference curves are downward sloping - it has a straight line indifference curve.