Question

Can someone check these answers please and ensure that they are correct. If not, can you please explain how to do/ what was done wrong. Thank you!

QUESTION 1 In 2007, the economy slipped in a recession that many called the worst since the Great Depression. This caused people to experience a general decrease in their income levels. At the same time, there was an increase in the price of wheat used to make Ramen Noodles (an inferior good). Given these two effects, what would happen to the equilibrium price and quantity of Ramen Noodles? Equilibrium price will decrease, equilibrium quantity will increase Equilibrium price will decrease, the effect on quantity is ambiguous Equilibrium price will increase, the effect on quantity is ambiguous. Equilibrium quantity will decrease, the effect on price is ambiguous QUESTION 2 There is a national warning advertising that the price of gasoline will triple next month. At the same time, tensions between the United States and countries in the Middle East has significantly reduced the U.S. importation of crude oil used to make gasoline. Given these two effects, what can we say about the current equilibrium price and quantity of gasoline? Equilibrium price will decrease, equilibrium quantity will increase. Equilibrium price will decrease, the effect on quantity is ambiguous Equilibrium price will increase, the effect on quantity is ambiguous. Equilibrium quantity will decrease, the effect on price is ambiguous.

Answer 1

Ans: All the answers are correct except the last question:5

Ans: equilibrium quantity will decrease, the effect on price is ambiguous.

Reason: Both the effects will result in a decrease in supply and demand, shifting both the curves to the left. this will decrease the quantity demanded but will have an ambiguous effect on price which can be cleared only after knowing the degree of change.