Question

For questions 9-12, assume that alcohol and marijuana are substitutes in consumption whereas alcohol and cigarettes are complements in consumption.

9) If cigarette taxes are reduced:
a. demand for alcohol will increase.
b. quantity demanded for alcohol will increase. c. demand for alcohol will decrease.
d. quantity demanded for alcohol will decrease. e. alcohol market will not be affected.

10) If alcohol taxes are reduced:
a. demand for marijuana will increase.
b. quantity demanded for marijuana will increase. c. demand for marijuana will decrease.
d. quantity demanded for marijuana will decrease. e. marijuana market will not be affected.

Exercise 1 (2 points):

11) If minimum legal drinking age becomes 25: a. demand for cigarettes will increase.
b. quantity demanded for cigarettes will increase. c. demand for cigarettes will decrease.

d. quantity demanded for cigarettes will decrease. e. cigarette market will not be affected.

12) If minimum legal drinking age becomes 25: a. demand for marijuana will increase.
b. quantity demanded for marijuana will increase. c. demand for marijuana will decrease.

d. quantity demanded for marijuana will decrease. e. marijuana market will not be affected.

Answer 1

. Ans9) b is the correct option.quantity demanded for alcohol will increase cigarette. If cigarette taxes are reduced the quantity demanded for alcohol will increase because here cigarettes and alcohol are complements meaning both are consumed together so if price of one decreases the quantity demanded for the other product increases.

Ans10) d is the correct option. Quantity demanded for Marijuana will decrease. Here alcohol and Marijuana are substitutes meaning both goods give the same utility. If alcohol taxes are reduced that means the price of alcohol decreases so people will prefer to consider alcohol over Marijuana.

Ans11) d is the correct option. Quantity Demanded for cigarettes will decrease. If the legal drinking age becomes 25 less alcohol will be consumed and the quantity demanded for cigarettes well decrease because both the goods are consumed together.

Ans12) b is the correct option quantity Demanded for Marijuana will increase. So if the drinking age becomes 25 the demand for Marijuana will increase because the people who could not consume alcohol will start consuming Marijuana because both gives the sand utility as Marijuana and alcohol are substitutes