Question

Suppose that the price of a carton of skim milk is expected to fall next month Explain the effect of this event on the quantity of skim milk supplied and on the supply of skim milk. O A. The quantity of skim milk supplied decreases and the supply of skim milk also decreases. O B. The quantity of skim milk supplied increases O C. The supply of skim milk decreases. O D. The quantity of skim milk supplied decreases E. The supply of skim milk increases

Answer 1

(1) (B)

A fall in expected future price will cause producers to decrease supply. But quantity supplied will not change (since current price does not change).

(2) (C)

A minimum wage law is a binding price floor, below which firms are not legally allowed to hire workers.

(3) (A)

A price support is a binding price floor imposed above equilibrium price. At higher floor price, quantity demanded falls but quantity supplied rises, causing a surplus that the government purchases at floor price.

(4) (B)

Cross elasticity = % Change in demand for lasagna / % Change in price of bread = -4% / 10% = -0.4

Since Cross elasticity is negative, they are complements.