Introduction to Microeconomics

17. A new technology makes it possible to produce more flat-screen televisions, without using any more inputs. As a result of this technological improvement, what will happen in the market for flat-screen televisions? Answer: c. Supply will increase (i.e., the supply curve will shift to the right). A deterioration of technology will shift the supply curve to the left. An improvement of technology will shift the supply curve to the right. 18. In Lower Slobbovia, the price of a zizwomp is $10. But then the government of Lower Slobbovia issues a law saying that it is illegal to buy or sell zizwomps for more than $5. The government of Lower Slobbovia is well known for its brutality, and it is generally believed that anyone caught violating the law will be shot. As a result of this price control, what will happen in the market for zizwomps in Lower Slobbovia? Answer: e. (a) and (b). Choice (a) is “Buyers will move down and to the right along their existing demand curves. Choice (b) is “Sellers will move down and to the left along their existing supply curves.” Both of these are correct. Demand curves and supply curves are constructed by allowing the current price of the good to vary, while holding constant all other potential influences on buyers or sellers. This question refers to a change in the price. It does not refer to a change in any of the variables that are held constant when we construct the curves. Thus this question does not refer to anything that would lead to a shift in one of the curves. 19. The price of good J decreases. As a result, the demand for good K decreases (i.e., the demand curve for good K shifts to the left). On the basis of this information, what can we say about good J and good K? Answer: e. Good J and good K are substitutes. When the price of one good increases, the demand for its substitutes will increase. However, when the price of a good decreases, the demand for its substitutes will decrease. For example, if red-delicious apples and braeburn apples are substitutes, a decrease in the price of red-delicious apples will cause people to substitute toward red- delicious apples, and away from braeburn apples. Thus the demand for braeburn apples will decrease. 20. In Spartyland, there are 10 taco restaurants. Now, 5 new taco restaurants open. As a result of the increase in the number of sellers, what happens in the market for restaurant tacos in Spartyland? Answer: c. Supply will increase (i.e., the supply curve will shift to the right). The market supply curve is constructed by adding up the supply curves for the individual firms. An increase in the number of firms will shift the market supply curve to the right, while a decrease in the number of firms will shift the market supply curve to the left. 5

Schools|Michigan State University

Departments in Michigan State University

ECON

ECON

Popular courses from Michigan State University

Popular documents from Michigan State University