a. The market for bagels is perfectly competitive. The price of flour for making bagels drops. At the same time, rents for bagel shops increase. Assuming that all existing shops stay in business, at any price:

a)more bagels will be supplied than before.

b) fewer bagels will be supplied than before.

c) the same amount of bagels will be supplied as before.

d) the amount of bagels supplied will be either more or less than before, depending on how much the price of flour dropped and how much the rent increased.

B. You are told that the price elasticity of demand is -2. You observe that the market price is 10 and quantity demanded at the market price is 20. You also happen to know that the equation of the demand curve is linear and given by Q = a - bP where a and b are positive constants. The values of a and b are:

a) a = 36 and b = 1.6

b) a = 60 and b = 4

c) a = 40 and b = 2

d) a = 30 and b = 1