Answer to Question #249254 in Microeconomics for Kritika

Question

For each of the following, explain if it is true or false. Accordingly, explain whether quantity
demanded changes because of a demand shift or a price change.
a. The rapid increase in college tuitions will lower the demand for college.
b. The war against drugs will lower the price of domestically produced marijuana.
c. As a result of increased military spending, the price of Army boots rises
d. An increase in petrol taxes lowers the consumption of petrol.
e. A à ƒ ¢ € ˜congestionà ƒ ¢ € ™ tax imposed on cars using certain routes at certain times

Answer 1

$a.$ False. The increase in college tuition will not decrease the demand for college. It will, however, increase the barrier and make few people go to college.

$b.$ False. The war against drugs will lead to scarcity of these drugs. The reduced availability will lead to an increase in price since the demand remains constant.

$c.$ True. Since army expenditure has increased, more boots will be bought. The increased purchase of boots increases the demand, which increases the price.

$d.$ True. An increase in petrol taxes lowers the demand for petrol and the quantity consumed since car owners have other alternatives to get to their destinations.

$e.$ True. These routes will experience a decrease in the number of cars since the tax will affect the demand. Also, these cars have an alternative since the tax is imposed at certain times