l 3.. b. 9.. FDP-PP'PN 99's) 0.9 PQFVP-b Elementary Ncroeconomics ECON 2100 Problem set #2 Instructor: Meltem Topaloglu Onen Email address: mtopalo gluonen@gadcenter. cunv.edu . Which of the following statements is true about a market economy? With a large enough computer, central planners could guide production more efficiently than markets. Market participants act as if guided by an invisible hand to produce outcomes that maximize social welfare. The strength of a market system is that it tends to distribute resources evenly across consumers. Taxes help prices communicate costs and benets to producers and consumers. . The law of supply states that an increase in the price of a good none of these answers. increases the quantity supplied of that good. increases the supply of that good. decreases the demand for that good. decreases the quantity demanded for that good. . Which of the following shifts the demand for watches to the right? an increase in the price of watches none of these answers a decrease in the price of watch batteries if watch batteries and watches are complements a decrease in consumer incomes if watches are a normal good a decrease in the price of watches . If the price of a good is above the equilibrium price, there is a surplus and the price will rise. there is a shortage and the price will fall. there is a shortage and the price will rise. the quantity demanded is equal to the quantity supplied and the price remains unchanged. there is a surplus and the price will fall. . If the price of a good is equal to the equilibrium price, there is a shortage and the price will fall. the quantity demanded is equal to the quantity supplied and the price remains unchanged. there is a surplus and the price will rise. there is a shortage and the price will rise. there is a surplus and the price will fall. ogpp'sow . An increase (rightward shift) in the demand for a good will tend to cause an increase in the equilibrium price and quantity. none of these answers. an increase in the equilibrium price and a decrease in the equilibrium quantity. a decrease in the equilibrium price and an increase in the equilibrium quantity. a decrease in the equilibrium price and quantity. 7. Suppose there is an increase in both the supply and demand for personal computers. Further, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers; we would expect a. the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall. b. the equilibrium quantity to rise and the equilibrium price to rise. 99.0 the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous. the equilibrium quantity to rise and the equilibrium price to fall. the equilibrium quantity to rise and the equilibrium price to remain constant. 8. Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice? 3.. 9.0.0\" FD Price will decrease; quantity is ambiguous. The impact on both price and quantity is ambiguous. Price will increase; quantity will increase. Price will increase; quantity will decrease. Price will increase; quantity is ambiguous. 9. An inferior good is one for which an increase in income causes a(n) 9'9 9.0 10. FL FDFLPP'PH decrease in supply. increase in demand. increase in supply. decrease in demand. An increase in the price of beef provides information which provides no information because prices in a market system are managed by planning boards. tells consumers to buy less pork. tells producers to produce more beef. tells consumers to buy more beef. . Which of the following is not a factor of production? labour land money capital All of these answers are factors of production. 12. 999'!\" 13. 9.0.3.\" 14. 9.0.3.\" 15. Which of the following will not shift a country's production possibilities frontier outward? an advance in technology an increase in the labour force an increase in the capital stock a reduction in unemployment A price floor always determines the price at which a good must be sold. sets a legal maximum on the price at which a good can be sold. is not a binding constraint if it is set above the equilibrium price. sets a legal minimum on the price at which a good can be sold. When a tax is collected from the buyers in a market, the tax burden falls most heavily on the buyers. the buyers bear the burden of the tax. the sellers bear the burden of the tax. the tax burden on the buyers and sellers is the same as an equivalent tax collected from the sellers. If a buyer's willingness to pay for a new Honda is 20,000 and she is able to actually buy it for 18,000, her consumer surplus is a. 18,000. b. 20,000. 0. 2,000. (1. 0. e. 38,000. 16. If a benevolent social planner chooses to produce less than the equilibrium quantity of a good, then a. total surplus is maximized. b. the value placed on the last unit of production by buyers exceeds the cost of production. 9.0 e. 17. 9999'? 51.0.7.\" producer surplus is maximized. the cost of production on the last unit produced exceeds the value placed on it by buyers. consumer surplus is maximized. If buyers are rational and there is no market failure, free market solutions are efficient. free market solutions maximize total surplus. all of these answers. free market solutions are equitable. free market solutions are efcient and free market solutions maximize total surplus. . If a market generates a side effect or externality, then free market solutions maximize producer surplus. are efcient. are inefcient. are equitable. Answer the following questions shortly. 19. Which contributes more to GDP-the production of an economy car or the production of a luxury car? Why? 20. Describe the three problems that make the CPI an imperfect measure of the cost of living. 21. Does a higher rate of saving lead to higher growth temporarily or indefinitely? 4