Question

26. Assume there is an increase in income and an increase in the number of firms. What can be predicted with certainty?

The equilibrium price will increase.

The equilibrium price will decrease.

The equilibrium quantity will decrease.

The equilibrium quantity will increase.

27. Assume there is an increase in taxes and a negative change in consumer tastes. What can be predicted with certainty?

The equilibrium quantity will decrease.

The equilibrium quantity will increase.

The equilibrium price will increase.

The equilibrium price will decrease.

28. Assume there is an increase in the price of a complement, an expectation among consumers of a lower price and an increase in income (the good is inferior). Which of the following is correct?

The equilibrium price will decrease, and the equilibrium quantity will decrease.

The equilibrium price will increase, and the equilibrium quantity will decrease.

The equilibrium price will increase, and the equilibrium quantity will increase.

The equilibrium price will decrease, and the equilibrium quantity will increase.

29. Which of the following is NOT a problem anticipated with a price floor?

Firms will waste time trying to offer “disguised discounts.”

There will be decreased investment in the industry.

There will be a persistent surplus.

There will be storage/disposal issues.

Consumption of the good or service will decrease

30. A price ceiling is a government-imposed _______ price that can be legally charged and for it to have any meaning it is put in place _______ the equilibrium price.

minimum, above

minimum, below

maximum, below

maximum, above

Answer 1

(26) (d)

Higher income will increase demand, shifting demand curve rightward, increasing price and increasing quantity. Higher number of sellers will increase supply, shifting supply curve rightward, decreasing price and increasing quantity. So net effect is definite increase in quantity.

(27) (a)

Negative tastes will decrease demand, shifting demand curve leftward, decreasing price and decreasing quantity. Higher tax will decrease supply, shifting supply curve leftward, increasing price and decreasing quantity. So net effect is definite decrease in quantity.

(28) (a)

Higher price of complement will decrease demand. Expectation of lower price will decrease demand. Increase in income will decrease demand (for inferior good). So net effect is definite decrease in demand, which decreases both price and quantity.

(29) (a)

Firms will be able to sell their unsold output using disguised discounts, which is an illegal form of selling.

(30) (c)

Price ceiling is effective only if imposed below equilibrium price.