Question

Exhibit 4-4 Supply and demand curves for good X Pue Qty Gay) 5. An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4.4? a. Graph A. b. Graph B. c. Graph C. d. None of the above. 6. Which of the following would raise both the equilibrium price and the equilibrium quantity of strawberries? a. A decrease in the supply of strawberries. b. An increase in the demand for strawberries. c. An increase in the supply of strawberries. d. A decrease in the demand for strawberries. 7. Ceteris paribus, if consumer tastes change so that more people are eating broccoli, then what will to the market equilibrium for cabbage, a substitute good for broccoli? a. Price and quantity will stay the same. b. Price will decrease, and quantity will decrease. c. Price will increase, and quantity will decrease. d. Price will increase, and quantity will increase. e. Price will decrease, and quantity will increase.

Answer 1

5. Due to an increase in the wage rate paid to workers, the cost of producing good X increases and hence the supply of good X will decline and the supply curve of good X will shift leftward from S1 to S2 and the economy moves from point E1 to E2. Hence equilibrium price of good X will increase and equilibrium quantity of good X will decline. Hence the answer is:

b. Graph B.

6. Due to an increase in the demand for strawberries, the demand curve will shift rightward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of strawberries increase from P1 to P2 and the equilibrium quantity of strawberries will increase from Q1 to Q2. Hence the answer will be:

supply B > or Q CS Scanned with Qi > Q2 CamScanner

b. An increase in the demand for strawberries.

7. Ceteris paribus, if consumer tastes change so that more people are eating broccoli, the the demand for its substitute i.e demand for cabbage will decline and the demand curve for cabbage will shift leftward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of broccoli will decline from P1 to P2 and the equilibrium quantity of broccoli will decline from Q1 to Q2. Hence the answer will be :

supply t . >Q Q2E CS Scanned with CamScanner

b. Price will decrease,and quantity will decrease.