Answer questions 1 through 4 based on the supply-demand model below: bu SUPPL 20

Question

Answer questions 1 through 4 based on the supply-demand model below: bu SUPPL 20 1oo so 200 1. At a price of S40, the quantity that consumers want to purchase and the amount producers choose to sell are the same. 2. Consumers are willing to take 200 units at $20 per unit but only 100 units at $60 per unit because of the (a) income effect (b) substitution effect () marginal utility effect (d) all above of the -. 2o maet wil e in what economists call equlibrium" if the price stls at (0 $60 0bs40 (c) S20 (d) any of these prices 4. If there is an increase in demand for the product in this market (a) suppliers will increase supply (b) the price of the product will increase (c) the inverse relationship between price and guantity becomes direct (d) all of the above 5. The "price elasticity of demand" refers to the degree of responsiveness of quantity to changes in (a) supply (b) price (e) consumer preference (d) the cost (or price) of the raw materials needed to make the good 6. Under the current federal farm program, the Government keeps the price of wheat high by (a) buying fixed amounts of wheat at pre-determined prices (b) imposing a price floor on wheat prices (c) paying farmers to grow less wheat (d) giving other countries money that can only be used to purchase US grown wheat 7. A producer raises the price of its goods, sees a decline in the quantity of its goods sold, but experiences an increase in total revenue. We can conclude that demand for this producer's goods is (a) elastic (b) inelastic (c) unit elastic (d) insufficient information given to make any conclusion about market demand

Explanation / Answer

1) At the price of $40 quantity demanded=quantity supplied=150 units. So the quantity that consumer demand is equal to the quantity that producers choose to sell is equal.

2) At price, $20 demand is 200 units and at price, $60 demand is 100 units. So price is increased as a result demand decreases. This is a substitution effect. Option b is correct.

3) Equilibrium has occurred where demand=supply. Here at $40 demand=supply=150 units. Option b is correct.

4) When the demand is increased, demand curve shifts to the right as a result price will be increased. To maintain equilibrium supply should be increased. So quantity will be increased as result of price increased, inverse relation becomes direct. Option d is correct.

5) The price elasticity of demand means the degree of responsiveness of quantity to the change in price. Option b is correct.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---