Question

1. If the price of traditional medical care goes up, then what would economic theory say about the demand for alternative medicine?

2. A popular saying is that if you tax a business, they will just pass the tax on to their customers. Evaluate that statement.

3. What happens to the hospital market if the cost of providing hospital care books increases? How does the supply/demand diagram change?

4. In order to maximize profits, a firm must increase output until _________ equals __________

5. Consider a competitive firm using one factor, labor. When the wage it pays its workers falls, what happens to the level of output it supplies?

Answer 1

1. If the price of traditional medical care goes up, then what would economic theory say about the demand for alternative medicine?

Here the two goods in question as substitute to each other therefore, when the price of one will increase then the demand for alternative medicine will go up.

2. Some part of the burden is borne by the buyers and remaining is borne by the sellers. Due to tax the goods or service will become expensive and hence the buyers will demand less quantity and the suppliers will be supplying less quantity into the market. Therefore, both buyers as well as sellers will share the tax burden amongst them.

3. When the cost of providing hospital care book increases then the supply will shift to its left. But as services of hospital care is unavoidable therefore the demand by paitents will decline but less than the supply.

4. In order to maximize profit a firm must increase output until the marginal revenue equals marginal cost.

5. When the wages will decline then the firms supply will increase. As labour is the only input.