Question

Can you explain the reasoning/ how to get to these answers?

10. Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? a. Price will rise. b. Price will fall. c. Price will stay exactly the same. d. The price change wil be ambiguous. Scenario 12-2 Suppose that Bob places a value of S10 on a movie ticket and that Lisa places a value of S7 on a movie ticket. In addition, suppose the price of a movie ticket is S5 ії. Refer to Scenario 12-2. Suppose the government levies a tax of$3 on a movie ticket and that, as a result, the price of a movie ticket increases to S8. What is total consumer surplus after the tax is imposed? a. SO b. $1 C. d. $3

Answer 1

Solution A:

Since supply of pens decrease with rising incomes and so does wages have increased which causes manufacturer to raise price eventually to cope up with demand and rise ln wages.

Hence correct answer is A. Price will rise.

Solution B:

Since consumer surplus is difference of price consumers are willing to pay and price they actually pay after taxes.

Hence wecan see after taxes the rate consumers will have to pay is 8dollar minimum . Since Lisa is willing to pay only 7 dollars it is not case of consumer surplus. Whereas Bob is willing to pay 10 dollars.

Means consumer surplus= 10-8= 2 dollars.

Hence correctanswer is C. 2 dollars.