Choose the correct answer

1)Powdered milk is considered an inferior good. What would happen to the equilibrium price and quantity of powdered milk if incomes decreased and at the same time more firms started producing powdered milk?

a.Equilibrium price would go down and equilibrium quantity would be indeterminate.

b.Equilibrium price would be indeterminate and equilibrium quantity would go up.

c.Equilibrium price would go up and equilibrium quantity would be indeterminate.

d.Equilibrium price and equilibrium quantity would both go up.

e.Equilibrium price would go up and equilibrium quantity would go down.

2)Suppose that the equilibrium price of cheddar cheese is $4.50 per kg. Now a controversial new study comes out, claiming the fat in cheddar cheese is good for the heart. Holding all other factors constant, which of the following scenarios could happen?

a.The price of cheddar cheese increases to $5 because of a demand shift.

b.The price of cheddar cheese increases to $5 because of a demand and a supply shift.

c.The price of cheddar cheese decreases to $4 because of a demand shift.

d.The price of cheddar cheese decreases to $4 because of a supply shift.

e.The price of cheddar cheese increases to $5 because of a supply shift.

3)Thanos is willing to buy a used textbook from Francisco for $40. Francisco is willing to sell the textbook for $10.They agree on a price of $20. How much larger is the consumer surplus than the producer surplus in this transaction?

a.-$10

b.$0

c.$20

d.$10

e.$30

4) Coffee and tea are substitutes. The supply of coffee is increased due to a great harvest. Which of the following would be true?

Assume the supply and demand curves in both markets are neither perfectly elastic nor perfectly inelastic.

a.A decrease in the consumer surplus in the market for tea but an increase in producer surplus in the market for coffee.

b.More than one answer is correct.

c.An increase in consumer surplus in the market for coffee but a decrease in producer surplus in the market for coffee.

d.A decrease in the consumer surplus and producer surplus in the market for tea.

e.An increase in producer surplus in the markets for coffee and tea.

5) Consider a market for umbrellas, where the demand is given by the equation QD = 20 - 4P and supply is given by the equation QS = 6P + 15. During rainy season, the demand increases by 20 units in the market, the new price must be _______.

a.$6.50

b.$5

c.$2.50

d.$10

e.$8

6) A bookstore sells 70 economics books per month when the price is $15 each. If they lower the price to $7 each, they sell 90 books per month. Given this, we know that the elasticity of demand for economics books is:

a.-1, so this store should not change its prices.

b.-0.34, so this store should lower price to raise total revenue.

c.-0.34, so this store should raise price to raise total revenue.

d.-2.91, so this store should raise price to raise total revenue.

e.-2.91, so this store should lower price to raise total revenue.