Microeconomics Answers

Assume that beer is a normal good. If the price of beer rises, then the substitution effect
results in the person buying … of the good, and the income effect results in the person
buying … of the good.

1. more, more
2. more, less
3. less, more
4. less, less

A decrease drop in the price of a product from R25,00 to R20,00 causes the quantity
demanded to increase from 1 500 to 2 000 units. Using the arc elasticity of demand, the
price elasticity of demand is … .
1. 0.77
2. – 0.78
3. – 0.82
4. – 1.29

If the supply equation is given as
Qs=-200+10P, the price elasticity of supply between
R25 and R35, calculated using the arc elasticity of demand, is …
1. 0.6
2. 1.8
3. 0.53
4. 3.0

Consider the following demand and supply functions: Demand: Qd = 300 – 15P.
Supply: Qs = –150 + 60P. What is the equilibrium price and output?
1. P = R2 and Q = 540.
2. P = R10 and Q = 150.
3. P = R6 and Q = 210.
4. P = R3.33 and Q = 200.

In the long run, all costs are fixed.
1) True
2) False

The sum of consumer and producer surplus is a measure of the economic well-being of a society.
1)True
2)False

The price elasticity of supply is likely to be greater for motor vehicles in general than for a specialized market, such as sport utility vehicles.
1) True
2) False

If pizza and hamburgers were substitutes, a decrease drop in the price of pizza would increase the demand for hamburgers.
1)True
2)False

An increase in supply tends to increase the equilibrium price and quantity
1) True
2) False

Consider a city that has several hot dog vendors operating in the downtown area. Suppose that each vendor has an identical constant marginal cost of $1 up to 150 hot dogs per day but its marginal cost surges to a constant level of $5 for the units after 150 hotdogs a day. A vendor’s fixed cost-for the vending cart-is all sunk. The vendors of course are profit-maximizers.
Let us get back to a daily situation, i.e. short run situation. Suppose the daily market demand for hot dogs is Q = 5,000 – 1,000P, in which P denotes the price per hotdog & Q denotes the total number of hot dogs demanded a day at price P. Each vendor’s marginal cost is the same as before. Suppose also that, due to its new environmental law, the city has decided to regulate the hot dog market by issuing the business permit only to 20 vendors. And, as a response, the 20 vendors with permits managed to form a cartel to coordinate their pricing and improve their profits. How much of deadweight loss a day would the cartel cause to the market?