Question

27. Mexican Hut sells tacos and competes with its main rival Burger Queen, which sells hamburgers. If rising corn prices unexpectedly increase the cost of taco shells for Mexican Hut, which of the following statements are correct in the long run when market equilibrium is restored? (More than one answer is correct. Hint: Use graphs to help answer this question)

a. The supply of Mexican Huts tacos will decrease, their price will increase; the demand for Burger Queen’s hamburgers will then increase, and their price will increase.

b. The supply of Mexican Hut’s tacos will decrease, their price will increase and the quantity demanded for tacos will decrease.

c. The supply of Mexican Hut’s tacos will decrease, while the quantity supplied of Burger Queen’s hamburgers will increase as the price of hamburgers increases;

d. The price of tacos will rise and the quantity demanded for tacos will decrease; the price of hamburgers will increase as the supply of hamburgers increases;

e. The price of burgers will rise, the demand for tacos will fall, and the quantity of tacos supplied will decrease.

29. If the price of sandals is fixed by law below the market-clearing price (Note: More than one answer is correct):

a. a shortage of sandals will result.

b. sandal inventories at shoe stores will be smaller than when the market price prevails.

c. the quantity of sandals purchased will be less than the quantity purchased at the market price.

d. the quantity of sandals supplied will be greater than the quantity supplied at the market price.

e. the quantity of sandals demanded will be greater than the quantity supplied.

32. Economic analysis suggests that patent laws that can often be used to limit the entry of potential competitors into an industry (more than one answer is correct):

a. redistribute income from consumers to business decision makers without affecting the allocation of resources.

b. may be a source of business monopoly power, but they may also encourage innovation and the development of cost- reducing production techniques in the long run.

c. encourage product development and the adoption of cost-reducing technologies in the short run but in the long run generally lead to business monopoly.

d. help inventors at the expense of consumers in the short run. e. help consumers at the expense of inventors in the long run.

Answer 1

27. The Tacos and Hamburgers are perfect substitute to each other i.e consumer percieved them similar. Increase in the price of corn leads to increase in price of Tacos which leads to decrease in demand for Tacos. This caused the increase in the demand of Hamburgers as consumer will shift towards it. Therefore the correct answer is d.