Thursday, January 19, 2017

2012 Multiple Choice (Supply & Demand)

2012 Multiple Choice (Supply & Demand)

 I like it...

Answer - (B) increasing demand for pretzels and therefore  the price of pretzels

Answer - (D) decrease decrease

This question is a bit confusing,,, but answer me this....

If I give you money to hire city workers,,,, what will happen to the demand for rural(country) workers

The demand for rural workers will decrease,,, 
Price (wage rate) will fall as demand has decreased for rural workers
and quantity demanded for rural workers will fall (as will their total hours of work)

Answer - (B)
Look closely at the marginal utility curve,,,,, it is downward sloping
Utility (value, satisfaction, benefit) falls with each unit consumed.

Answer - (C)

(A) Less supply of oranges, price increases
(B) Price apples increases, demand for oranges increases, price for oranges increases
(C) Oranges cause cancer, demand for oranges decrease, price decreases
(D) Supply oranges decrease, price increases
(E) Advertising increases demand, price increases

Answer - (D) decrease because hamburgers and onions are complements

Answer - (A)

This question should really be in the Government intervention section for indirect taxes.
If the price is higher due to a tax.
Consumers now pay more for the good, their surplus has decreased
Producers receive less for the good, their surplus has decreased
(((Total surplus is maximised where D=S, at market equilibrium)))

Answer - (C)

In explaining the diamond-water paradox, marginalists explain that it is not the total usefulness of diamonds or water that determines price, but the usefulness of each unit of water or diamonds. It is true that the total utility of water to people is tremendous, because they need it to survive. However, since water is in such large supply in the world, the marginal utility of water is low. In other words, each additional unit of water that becomes available can be applied to less urgent uses as more urgent uses for water are satisfied.
Therefore, any particular unit of water becomes worth less to people as the supply of water increases. On the other hand, diamonds are in much lower supply. They are of such low supply that the usefulness of one additional diamond is greater than the usefulness of one additional glass of water, which is in abundant supply. Thus, diamonds are worth more to people. Therefore, those who want diamonds are willing to pay a higher price for one diamond than for one glass of water, and sellers of diamonds ask a price for one diamond that is higher than for one glass of water.
Conversely, a man dying of thirst in a desert would have greater marginal use for water than for diamonds so would pay more for water, perhaps up to the point at which he was no longer dying.

Answer - (A)
Supply and demand cheat sheet here.
A lower priced good (downward sloping demand) causes us to have higher purchasing power (it's like our income increased) and the ability to substitute a lower priced good for a higher priced good increases our purchasing power (the amount of goods we can buy for a dollar) both effects increase our purchasing power and hence,,, our incomes.

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