Question 1

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.When $P _ { I }$ = $40 and F = 50,the INVERSE supply function is

Accepted Answer

To find the inverse supply function, solve the given supply function for P. Substituting $P_I = 40$ and $F = 50$ into the supply function gives $Q_5 = 40 + 6P - 8(40) + 10(50)$. Simplifying, we get $Q_5 = 40 + 6P - 320 + 500$, which simplifies further to $Q_5 = 220 + 6P$. Solving for P gives $P = \frac{Q_5 - 220}{6}$, which simplifies to $P = -36.667 + 0.1667Q_5$, matching choice A.

Question 2

Use the following general linear demand function below: $Q _ { d } = a + b P + c M + d P _ { R }$ where Q_d = quantity demanded,P = the price of the good,M = income, $P _ { R}$ = the price of a good related in consumption.If c = 15 and d = 20,the good is

Accepted Answer

The coefficient on income (c) is positive, indicating that the good is a normal good. The coefficient on the price of the related good (d) is positive, indicating that the good is a substitute for good R.

Question 3

Use the following general linear demand function below: $Q _ { d } = a + b P + c M + d P _ { R }$ where Q_d = quantity demanded,P = the price of the good,M = income, $P _ { R }$ = the price of a good related in consumption.For the general linear demand function given above

Accepted Answer

Each statement correctly describes the coefficients in the given linear demand function: A) $\Delta Q_d / \Delta M = c$ indicates the change in quantity demanded for a change in income, B) $d$ represents the change in quantity demanded for a one-dollar change in the price of a related good, and C) $b$ represents the change in quantity demanded for a one-dollar change in the price of the good itself.

Question 4

In which of the following cases must price always fall?

Accepted Answer

In case C, if supply increases while demand remains constant, the market will have more goods than demanded, leading to a decrease in price to clear the excess supply. In case D, if demand decreases while supply increases, there will be even more excess supply relative to demand, also necessitating a price fall to encourage consumption. Both scenarios inherently lead to a price decrease.

Question 5

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.Suppose $P _ { I }$ = $40,F = 50,and the demand function is $Q _ { d } = 700 - 6 P$ ,then if government sets a price of $30 what will be the result?

Accepted Answer

The correct answer is A because at a price of $30, the quantity supplied is 240 (40 + 6(30) - 8(40) + 10(50) = 240) while the quantity demanded is 420 (700 - 6(30) = 420), resulting in a shortage of 120 units.

Question 6

If a demand curve goes through the point P = $6 and $Q _ { d }$ = 400,then

Accepted Answer

Option A is incorrect because the demand curve only shows the quantity consumers are willing to buy at a given price, not the highest price they are willing to pay.
Option B is incorrect because the demand curve only shows the quantity consumers are willing to buy at a given price, not the lowest price they are willing to accept.
Option C is correct because the point P = $6 and Qd = 400 represents the quantity demanded at that specific price, meaning consumers will not buy more than 400 units at $6.
Option D is incorrect because the demand curve slopes down, meaning as price increases, quantity demanded decreases. Therefore, if the price is $6, consumers will not buy more than 400 units. 
Option E is correct because it combines the correct explanations for options A and C.

Question 7

Consumer surplus

Accepted Answer

All of the given statements are true about consumer surplus. Option A is true because consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price paid, and is thus positive for all purchases except for the last one where the consumer is just indifferent between paying the price and not buying the product. Option B is true because consumer surplus for a particular unit of consumption is the difference between the willingness to pay and the market price. Option C is true because it is the sum of the consumer surplus for all units of the good consumed, and represents the benefit that consumers receive from paying less than the maximum they were willing to pay. Option D is true because the sum of consumer and producer surplus gives us the total economic surplus or total benefit from a transaction, which is a measure of the net gain to society from the production and consumption of the good.

Question 8

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.Now suppose $P _ { I }$ = $40 and F = 50,what is the largest amount of the good that firms will supply when the price of the good is $20?

Accepted Answer

Substituting $P = 20$, $P_I = 40$, and $F = 50$ into the supply function gives $Q_5 = 40 + 6(20) - 8(40) + 10(50) = 40 + 120 - 320 + 500 = 340$ units.

Question 9

If the demand price for the 2,000^th unit of a good is $10,then

Accepted Answer

Option B is correct - the economic value of a unit of a good is equal to its demand price, which is given as $10 in this question.
Option D is also correct - the net gain to society from the production and consumption of a good is equal to the difference between its demand price and supply price. In this case, since demand price is $10 and supply price is not given, we cannot compute the net gain to society.
Therefore, the answer is E - both options B and D are correct.

Question 10

If the market price of eggs rises at the same time as the market quantity of eggs purchased decreases,this could have been caused by

Accepted Answer

If the market price of eggs rises at the same time as the market quantity of eggs purchased decreases, it shows that there has been a decrease in supply with no change in demand. As the quantity of eggs available in the market decreases, the price for eggs increases, and consumers reduce their demand for eggs due to the high price.

Question 11

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.If $P _ { I }$ = $20 and F = 60 what is the equation of the supply function?

Accepted Answer

Since $P _ { I }$ = $20 and F = 60 are both constants, we can simplify the given supply function as follows:
$$Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$$
$$Q _ { s } = 40 + 6 P - 8 (20) + 10 (60)$$
$$Q _ { s } = 480 + 6 P$$
Therefore, the equation of the supply function is $Q _ { s } = 480 + 6 P$, which is option D.

Question 12

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.Suppose $P _ { I }$ = $40 and F = 50,what is the lowest price that will induce firms to supply 400 units of output?

Accepted Answer

The answer of Use the following general linear supply function:...

Question 13

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.If $$P _ { I }$$ = $20,F = 60,and the demand function is $Q _ { d } = 600 - 6 P$ the equilibrium price and quantity are,respectively,

Accepted Answer

To find the equilibrium, set $Q_s = Q_d$. Substitute $P_I = 20$ and $F = 60$ into the supply function: $Q_s = 40 + 6P - 8(20) + 10(60) = 640 + 6P$. Set $640 + 6P = 600 - 6P$ and solve for $P$: $12P = -40$, $P = 10$. Substitute $P = 10$ into either function to find $Q$: $Q = 540$.

Question 14

If a supply curve goes through the point P = $10 and $Q _ { 5 }$ = 320,then

Accepted Answer

Point P on the supply curve represents the price $10 and the quantity supplied of 320. This means that at a price lower than $10, firms will not be willing to supply 320 units. Therefore, $10 is the lowest price that will induce firms to supply 320 units.

Question 15

If the current price of a good is $10,market demand is $Q _ { d } = 400 - 20 P$ ,and market supply is $Q _ { s } = - 50 + 10 P$ ,then

Accepted Answer

At the current price of $10, we can find the equilibrium quantity by setting the market demand equal to the market supply, and solving for P:
\begin{align*}
Q_d &= Q_s \
400 - 20P &= -50 + 10P \
450 &= 30P \
P &= 15
\end{align*}

So the equilibrium quantity is:

\begin{align*}
Q_d = Q_s &= 400 - 20(15) \
 &= -50 + 10(15) \
 &= 100
\end{align*}

Since the current price of $10 is below the equilibrium price of $15, there will be excess demand or a shortage:

\begin{align*}
Q_d - Q_s &= 400 - 20(10) - (-50 + 10(10)) \
&= 150
\end{align*}

So the answer is D, because a lower price will increase the shortage, and there is currently excess demand or a shortage of 150 units.

Question 16

Derrick owns and operates a bakery.Every Saturday he bakes a batch of fresh kolaches,and every Saturday he sells all the kolaches and has to turn some customers away.Which of the following statements is correct?

Accepted Answer

At the current price, the quantity demanded for kolaches exceeds the quantity supplied, indicating a shortage. If Derrick lowered the price, this would increase demand further while the supply remains constant, exacerbating the shortage.

Question 17

Yesterday's newspaper reported the results of a study indicating that people who eat more bananas are more attractive to the opposite sex.What do you expect to happen to the market price and quantity of bananas?

Accepted Answer

Since the study suggests that people who eat more bananas are more attractive to the opposite sex, the demand for bananas is likely to increase. This will lead to an increase in both the price and quantity of bananas sold in the market. Hence, option D is the best choice.

Question 18

Use the following general linear demand function below: $Q _ { d } = a + b P + c M + d P _ { R }$ where Q_d = quantity demanded,P = the price of the good,M = income, $P _ { R }$ = the price of a good related in consumption.The law of demand requires that

Accepted Answer

The law of demand states that the quantity demanded of a good is inversely related to its price. Therefore, b must be negative.

Question 19

Use the following general linear supply function: $Q _ { 5 } = 40 + 6 P - 8 P _ { I } + 10 F$ where $Q _ { 5 }$ is the quantity supplied of the good,P is the price of the good, $P _ { I }$ is the price of an input,and F is the number of firms producing the good.Suppose $P _ { I }$ = $40,F = 50,and the demand function is $Q _ { d } = 700 - 6 P$ ,then if government sets a price of $50 what will be the result?

Accepted Answer

To find the result, we first calculate the quantity supplied ($Q_s$) and the quantity demanded ($Q_d$) at the government-set price of $50. Using the given supply function $Q_s = 40 + 6P - 8P_I + 10F$, with $P = 50$, $P_I = 40$, and $F = 50$, we get $Q_s = 40 + 6(50) - 8(40) + 10(50) = 40 + 300 - 320 + 500 = 520$. Using the demand function $Q_d = 700 - 6P$, with $P = 50$, we get $Q_d = 700 - 6(50) = 700 - 300 = 400$. Since $Q_s > Q_d$, there is a surplus, and the surplus amount is $Q_s - Q_d = 520 - 400 = 120$.

Question 20

Use the following general linear demand relation: $Q _ { d } = 100 - 5 P + 0.004 M - 5 P _ { R }$ where P is the price of good X,M is income,and $P _ { R}$ is the price of a related good,R.Income is $80,000,and the price of the related good is $40.Also let consumers' tastes change so that consumers now demand 100 more units at each price.When the price of the good is $50,how many units of the good are demanded?

Accepted Answer

The answer of Use the following general linear demand relation:...

Quiz 2: Demand,supply,and Market Equilibrium

Use the following general linear demand function below: Qd=a+bP+cM+dPRQ _ { d } = a + b P + c M + d P _ { R }Qd​=a+bP+cM+dPR​ where Qd = quantity demanded,P = the price of the good,M = income, PRP _ { R}PR​ = the price of a good related in consumption.If c = 15 and d = 20,the good is

In which of the following cases must price always fall?

If a demand curve goes through the point P = $6 and QdQ _ { d }Qd​ = 400,then