Question

Question 4.

Choose the correct answer for each of the following

$/ton $/ton 100 AL Japan 5。

1) The above figure shows the supply and demand curves for rice in the U.S. and Japan. Assume there is no trade between the two countries. If bad weather causes the supply curves in each country to shift leftward by the same amount, then

1. the price will increase in both countries.
2. the price will decrease in both countries.
3. the change in price cannot be determined.
4. None of the above.

2) If the supply curve of cigarettes shifts to the left, quantity demanded for cigarettes

1. will decrease substantially.
2. will increase substantially.
3. will slightly increase.
4. will slightly decrease.

3) As more people quit smoking in the United States, what is expected to happen to the price elasticity of supply of cigarettes?

1. It will decrease.
2. It will increase.
3. It can increase or decrease.
4. It will not change.

4) The short-run elasticity of supply is less than the long-run elasticity of supply

1. because consumers' tastes and preferences change in the long run but not in the short run.
2. because producers can adjust the amount of machinery in the long run but not in the short run.
3. only for durable goods.
4. only for nondurable goods.

(5) If the demand for oranges is written as Q = 100 - 5p, then the inverse demand function is

1. Q = 5p - 100.
2. Q = 20 - .2p.
3. p = 20 - 5Q.
4. p = 20 - .2Q.

Answer 1

1) If there is no trade between U.S. and Japan and bad weather cause supply curve to shift leftward by equal amount, price will rise in both countries and we can that rise in price in Japan would be more than in U.S. as seen in the diagram below:

Date IKY Japan U.S.

Option A is correct.

2) If supply curve of cigarettes shifts to its left, it will cause price to rise but it will not reduce quantity demanded of it by substantial amount as elasticity of cigarette is inelastic and there is no substtute of it. Consumer will reduce it demand by a small amount.Option D is correct.

3) Price elasticity of supply = %change in quantity supplied / %change in price

As there is less demand of cigarettes in the market, producer will also be forced to produce less to reduce their inventories which will reduce their quantity supplied. It will cause price elasticity of supply to decrease. Option A is correct.

4) Short run elasticity of supply is less than long run elasticity of supply because producers gets enough time in long run to adjust their production process as per the demand. Opton B is correct.

5) Q = 100 - 5p (expressed in Q)

Inverse demand function would be expressed in terms of P:

5p = 100 - Q

p = 20 - 0.2Q

Option D is correct.