Question

Suppose that goods X and Y are substitutes and the price of good Y falls. We would then expect

		the quantity of good Y demanded to increase and the demand for good X to increase also.
		an increase in the demand for good X and a decrease in the quantity of good Y demanded.
		an increase in the demand for both good X and good Y.
		an increase in the quantity demanded of good Y and a decrease in the demand for good X.

According to economist Paul Romer, economies that wish to experience growth must

		invest in knowledge.
		invest most of their savings in national defense.
		become command economies.
		drastically lower their standards of living.

Which of the following is NOT a consequence of the introduction of the Medicare program?

		a reduced demand for medical services
		an increased ability for the poor to obtain medical services
		an increased ability for the elderly to obtain medical services
		an increased quantity of medical services demanded

Unit excise taxes imposed on gasoline, alcohol, and cigarettes are

		paid by the wholesalers of these products.
		shared equally between the producer and the consumer.
		largely paid by the producers because they want to maintain their level of sales.
		largely paid by consumers because they are not very responsive to price changes.

Suppose an individual experiences a permanent increase in income. As a result of this increased income, further assume that the individual eats dinner at restaurants more frequently each month. This information suggests that dinners at restaurants for this individual are

		a substitute good.
		an inferior good.
		a normal good.
		both complimentary and inferior.

Answer 1

1. When good X and Y are substituted goods, a fall in price of Y creates more demand for it and at the same time creates less demand for good X. When the price of Y falls it is it more attractive to the consumer since it is cheaper than X. The good X is less attractive to the consumers as it is more costly now compared to good Y. Thus the demand for good Y increase and the demand for good X decrease.

Answer: an increase in the quantity demanded of good Y and a decrease in the demand for good X.

2. According to Paul Romer’s endogenous growth theory, economic growth is the result of internal investment in human capital, innovation and knowledge.

Answer: invest in knowledge.

3. The introduction of Medicare program increases the ability for the poor and elder people to obtain medical services. This will leads to an increased quantity of medical services demanded.

Answer: a reduced demand for medical services.

4. The demand for gasoline, alcohol and cigarettes is inelastic. Consumers are less sensitive for the price changes. Thus the producers conveniently shift the tax burden to the consumers. Therefor the consumers bear larger part of the tax burden.

Answer: largely paid by consumers because they are not very responsive to price changes.

5. The demand for a normal good has positive income elasticity. The consumers increase the demand for it while their income increases.

Answer: a normal good.