Question

7. A frozen food manufacturer can produce either pizzas or pepperoni rolls. As a result of a decrease in the price of pepperoni rolls, the firm produces fewer pepperoni rolls and more pizzas. An economist would explain this by saying a. the supply of pepperoni rolls increased and the supply of pizzas decreased. b. there has been an increase in the quantity supplied of pepperoni rolls and a decrease in the quantity supplied of pizzas. c. there has been an increase in the quantity supplied of pepperoni rolls and a decrease in the supply of pizza. d. there has been a decrease in the quantity supplied of pepperoni rolls and an increase in the supply of pizza. 8. A frozen food manufacturer can produce either pizzas or pepperoni rolls. As a result of an increase in the price of pepperoni rolls, the firm produces more pepperoni rolls and fewer pizzas. An economist would explain this by saying a. the supply of pepperoni rolls increased and the supply of pizzas decreased. b. there has been an increase in the quantity supplied of pepperoni rolls and a decrease in the quantity supplied of pizzas. c. there has been an increase in the quantity supplied of pepperoni rolls and a decrease in the supply of pizza. d. there has been a decrease in the quantity supplied of pepperoni rolls and an increase in the supply of pizza. The market for tires is unregulated and is presently characterized by excess demand. You accurately predict that a. price will increase, the quantity demanded will fall, and the quantity supplied will rise. b. price will increase, the quantity demanded will rise, and the quantity supplied will fall. c. price will decrease, the quantity demanded will rise, and the quantity supplied will fall. d. price will decrease, the quantity demanded will fall, and the quantity supplied will rise. 10. The market for tires is unregulated and is presently characterized by excess supply. You accurately predict that a. price will increase, the quantity demanded will fall, and the quantity supplied will rise. b. price will increase, the quantity demanded will rise, and the quantity supplied will fall c. price will decrease, the quantity demanded will rise, and the quantity supplied will fall. d. price will decrease, the quantity demanded will fall, and the quantity supplied will rise.

Answer 1

7. Ans: d.

Explanation: In case pepperoni rolls, its price has changed resulting is movement along existing curve only. For pizza's, there is external effect coming from decrease in price of substitute (pepperoni) resulting in increase in supply (shift).

8. Ans: c

Explanation: In case pepperoni rolls, its price has changed resulting is movement along existing curve only. For pizza's, there is external effect coming from increase in price of substitute (pepperoni) resulting in decrease in supply (shift).

9. Ans: a.

Explanation: Low price implies excess demand. Producers will raise prices, quantity supplied will rise and overtime quantity demanded will fall converging to equilibrium.

10. Ans: c.

Explanation: High price implies excess supply. Producers will cut down production and reduce prices, quantity supplied will fall and overtime quantity demanded will rise converging to equilibrium.

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