Question 1

Assume the demand function for scooters is given by Q_D = 20,000 - 10P + 0.2I,where P = price of a scooter,and I = average income of consumers.Also,assume the supply function of scooters is given by Q_S = 20P.If the market for scooters is perfectly competitive,and the average income of consumers is $20,000,what are the equilibrium price and quantity in this market?

Accepted Answer

To find the equilibrium, set Q_D equal to Q_S: 20,000 - 10P + 0.2(20,000) = 20P. Simplifying gives 24,000 - 10P = 20P, leading to 30P = 24,000, so P = $800. Substituting P = $800 into either Q_D or Q_S gives Q = 16,000.

Question 2

Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium.If the demand increases while the supply decreases,then we can be certain that

Accepted Answer

If the demand increases while the supply decreases, this creates a shortage in the market as the quantity demanded exceeds the quantity supplied. This puts upward pressure on the price as buyers are willing to pay more to get the product. As a result, the equilibrium price will increase as the market adjusts to the new conditions. However, the effect on the equilibrium quantity cannot be determined with certainty without additional information.

Question 3

Suppose Sam and Kevin can produce pens and pencils as shown in the table below.
  (a)Who has a comparative advantage in producing pens? Who has a comparative advantage in producing pencils?
(b)Suppose Sam and Kevin have to each give Flip,a common friend,10 pens and 10 pencils.Is there a trade that will make both of them better off? If a trade that would make both of them better off exists,describe such a trade.If there is no such trade that would make both of them better off,explain why.

Accepted Answer

(a)Kevin has a comparative advantage in producing pens because he has to give up only 2/3 of a pencil to make a pen.Sam would have to give up 12/8 = 3/2 pencils to make a pen.
(b)Yes,trade can make them both better off.Sam has a comparative advantage in producing pencils because he has to give up only 8/12 = 2/3 pens to make a pencil.Kevin would have to give up 6/4 = 3/2 pens to make a pencil.There is likely to be potential gains from trade if Kevin specializes in production of pens and Sam specializes in pencils.Kevin could exchange 10 pens for 10 pencils with Sam.

Question 4

What are externalities and why is Ronald Coase an important figure in economics?

Accepted Answer

The answer of What are externalities and why is Ronald...

Question 5

Markets can give a buyer everything a buyer needs to know about a product even though the buyer does not have the training to understand the specific knowledge needed to build or distribute the product.Explain.

Accepted Answer

The answer of Markets can give a buyer everything a...

Question 6

A competitive equilibrium price guarantees that

Accepted Answer

A competitive equilibrium price is where the market demand and market supply intersect. At this price, the quantity supplied equals the quantity demanded, and thus, consumers who want to buy the product at the market price are satisfied. This means that a competitive equilibrium price satisfies both consumers and producers, leading to gains from trade for both parties. Thus, option A is the correct choice. Option B is incorrect because hoarding of quantity is not related to a competitive equilibrium price. Option C is incorrect because gains from trade are maximized for both parties at a competitive equilibrium price. Option D is also incorrect because revenues generated may exceed the cost of production at a competitive equilibrium price.

Question 7

If demand is represented by Q_d = 50 - 0.5P + 0.005I where I = $50,000 and supply is represented by Q_s = 100 + 0.4P -2W where wages (W)= $15.00,compute the equilibrium price and quantity.What happens if income falls to I = $40,000?

Accepted Answer

The answer of If demand is represented by Q_d =...

Question 8

Assume the current market price of candles is such that there is a surplus (i.e.,excess supply).Which of the following best describes the adjustment process in a competitive market?

Accepted Answer

In a competitive market, if there is a surplus of candles, the market price is above the equilibrium price. In this situation, producers will want to sell more candles than consumers want to buy, and there will be excess supply. To eliminate the surplus, producers will lower their prices to encourage consumers to buy more candles. As the price decreases, the quantity demanded of candles will increase while the quantity supplied will decrease. This adjustment process will continue until the market reaches equilibrium, where the quantity demanded and the quantity supplied are equal, and there is no surplus or shortage. Therefore, choice C is the best description of the adjustment process in a competitive market.

Question 9

If the price of movie tickets doubles,then

Accepted Answer

When the price of movie tickets increases, people may seek alternative forms of entertainment, such as watching DVDs, leading to an increase in demand for DVDs.

Question 10

Assume the demand function for basketballs is given by Q_D = 150 −3P + 0.1I,where P = price of a basketball,and I = average income of consumers.Also,assume the supply of basketballs is given by Q_S = 2P.If the market for basketballs is perfectly competitive,and the average income is equal to $1,500,what is the equilibrium price and quantity? What if a 20 percent income tax is introduced?

Accepted Answer

Before the tax, we can find the equilibrium by setting QS=QD:
2P = 150 - 3P + 0.1I, where I = $1,500
Solving for P, we get P = $60.
At P=$60, QD = 120 and QS = 2P = 120, so the equilibrium price and quantity are $60 and 120 basketballs.

Now, if a 20% income tax is introduced, the demand function becomes:
QS1U1B1D = 150 - 3P + 0.1(0.8I)
Simplifying that, we get QS1U1B1D = 150 - 3P + 0.08I
At this point, we can find the new equilibrium by setting QS=QD:
2P = 150 - 3P + 0.08I, where I = $1,500
Solving for P, we get P = $54
At P=$54, QD = 108 and QS = 2P = 108, so the new equilibrium price and quantity are $54 and 108 basketballs.
Therefore, the price decreased by $6 and only 108 basketballs would be traded. So, the correct answer is B.

Question 11

A business manager has to decide whether to buy supplies from the marketplace or whether to build them inside the company.What do "information" and "contracting" have to do with this decision?

Accepted Answer

The answer of A business manager has to decide whether...

Question 12

The production and distribution of goods and services in an economy is said to be Pareto-efficient if

Accepted Answer

Pareto-efficiency, also known as Pareto-optimality, is achieved when no one can be made better off without making someone else worse off. This means that there is no alternative allocation of goods or services that would leave any individual or group better off without making someone else worse off.

Question 13

A bunch of elementary school kids sit down at a long lunch table.For several minutes,everyone trades food,but then the table becomes quiet as they begin to eat.What happened?

Accepted Answer

The answer of A bunch of elementary school kids sit...

Question 14

Many products come with a warning about how to use the product without harming other people.Why?

Accepted Answer

The answer of Many products come with a warning about...

Question 15

Assume the market for hammers is perfectly competitive and the current price is $15.If,at this price,the quantity of hammers demanded is 15,000,while the quantity supplied is 25,000,then

Accepted Answer

At the current price of $15, there is excess supply in the market as the quantity supplied is greater than the quantity demanded. This suggests that some suppliers may not be able to sell all their hammers, and may be willing to lower their prices to clear their inventory. Therefore, the price of hammers is likely to decrease in order to restore equilibrium in the market.

Question 16

Tom and Jerry have been roommates for the past two years.During this period,they bought 11 CDs together.Now that each is taking his own apartment,they are deciding how to split their possessions.Tom suggests they take five CDs each and give the extra one to Arnold,their neighbor.Jerry,on the other hand,suggests they flip a coin to decide who gets the 11th CD.Assuming they neither like nor dislike being altruistic,which of the two suggestions is Pareto efficient?

Accepted Answer

Pareto efficiency means that the allocation cannot be improved for at least one person without making someone else worse off.

In Tom's suggestion, Arnold gains an extra CD but neither Tom nor Jerry gain anything more than five CDs each. If either Tom or Jerry would prefer to have the 11th CD instead of giving it to Arnold, then Tom's suggestion is not Pareto efficient.

In Jerry's suggestion, the allocation of CDs is determined by chance and both Tom and Jerry have an equal probability of getting the 11th CD. This means that neither Tom nor Jerry can be made better off without making the other worse off, so the allocation is Pareto efficient. Therefore, Jerry's suggestion is Pareto efficient.

Question 17

What are the goals of an economic system? What is the criterion to measure the effectiveness of a system?

Accepted Answer

The answer of What are the goals of an economic...

Question 18

Draw supply and demand curves.Show the impact of an increase in demand on the price and quantity exchanged in the market.Show the impact of a decrease in demand on the price and quantity exchanged in the market.

Accepted Answer

The answer of Draw supply and demand curves.Show the impact...

Question 19

Faith and Hope are 30-year-old identical twins.The only difference between them is their credit score.Faith has a proven record of repaying debts.Faith can borrow money at 4.5 percent.Hope has often missed debt payments.Hope can borrow at 8.5 percent.
They are considering enrolling in an evening MBA program.They plan on completing the program in two years.Assume the annual tuition is $16,000 for both years.They also anticipate that the nonmonetary costs of obtaining an MBA will be $40,000 per year.The twins anticipate that after graduation in two years,their earnings will be $10,000 per year higher until they retire at age 62.Should Faith enroll in the evening MBA program? Should Hope enroll in the evening MBA program?

Accepted Answer

The answer of Faith and Hope are 30-year-old identical twins.The...

Question 20

A working knowledge of both markets and firms is important for managers to be effective because it

Accepted Answer

A working knowledge of markets and firms helps managers make appropriate strategic and operational decisions, such as understanding customer needs, anticipating competitor behavior, and adapting to changes in the business environment. This leads to improved performance and profitability for the organization. The other options, exploiting other executives, training subordinates, and earning high bonuses, are not the primary goals or outcomes of having a working knowledge of markets and firms.

Quiz 3: Exchange and Markets

Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium.If the demand increases while the supply decreases,then we can be certain that

What are externalities and why is Ronald Coase an important figure in economics?

Markets can give a buyer everything a buyer needs to know about a product even though the buyer does not have the training to understand the specific knowledge needed to build or distribute the product.Explain.

A competitive equilibrium price guarantees that

If demand is represented by Q_d = 50 - 0.5P + 0.005I where I = $50,000 and supply is represented by Q_s = 100 + 0.4P -2W where wages (W)= $15.00,compute the equilibrium price and quantity.What happens if income falls to I = $40,000?

Assume the current market price of candles is such that there is a surplus (i.e.,excess supply) .Which of the following best describes the adjustment process in a competitive market?

If the price of movie tickets doubles,then

A business manager has to decide whether to buy supplies from the marketplace or whether to build them inside the company.What do "information" and "contracting" have to do with this decision?

The production and distribution of goods and services in an economy is said to be Pareto-efficient if

A bunch of elementary school kids sit down at a long lunch table.For several minutes,everyone trades food,but then the table becomes quiet as they begin to eat.What happened?

Many products come with a warning about how to use the product without harming other people.Why?

Assume the market for hammers is perfectly competitive and the current price is $15.If,at this price,the quantity of hammers demanded is 15,000,while the quantity supplied is 25,000,then

What are the goals of an economic system? What is the criterion to measure the effectiveness of a system?

Draw supply and demand curves.Show the impact of an increase in demand on the price and quantity exchanged in the market.Show the impact of a decrease in demand on the price and quantity exchanged in the market.

A working knowledge of both markets and firms is important for managers to be effective because it

Quiz 3: Exchange and Markets

Assume the market for ceiling fans is perfectly competitive and is currently in equilibrium.If the demand increases while the supply decreases,then we can be certain that

What are externalities and why is Ronald Coase an important figure in economics?

Markets can give a buyer everything a buyer needs to know about a product even though the buyer does not have the training to understand the specific knowledge needed to build or distribute the product.Explain.

A competitive equilibrium price guarantees that

If demand is represented by Qd = 50 - 0.5P + 0.005I where I = $50,000 and supply is represented by Qs = 100 + 0.4P -2W where wages (W)= $15.00,compute the equilibrium price and quantity.What happens if income falls to I = $40,000?

Assume the current market price of candles is such that there is a surplus (i.e.,excess supply) .Which of the following best describes the adjustment process in a competitive market?

If the price of movie tickets doubles,then

A business manager has to decide whether to buy supplies from the marketplace or whether to build them inside the company.What do "information" and "contracting" have to do with this decision?

The production and distribution of goods and services in an economy is said to be Pareto-efficient if

A bunch of elementary school kids sit down at a long lunch table.For several minutes,everyone trades food,but then the table becomes quiet as they begin to eat.What happened?

Many products come with a warning about how to use the product without harming other people.Why?

Assume the market for hammers is perfectly competitive and the current price is $15.If,at this price,the quantity of hammers demanded is 15,000,while the quantity supplied is 25,000,then

What are the goals of an economic system? What is the criterion to measure the effectiveness of a system?

Draw supply and demand curves.Show the impact of an increase in demand on the price and quantity exchanged in the market.Show the impact of a decrease in demand on the price and quantity exchanged in the market.

A working knowledge of both markets and firms is important for managers to be effective because it

If demand is represented by Q_d = 50 - 0.5P + 0.005I where I = $50,000 and supply is represented by Q_s = 100 + 0.4P -2W where wages (W)= $15.00,compute the equilibrium price and quantity.What happens if income falls to I = $40,000?