Question

1. A price floor of 89 cents per bushel of cranberries was recently increased to $1.00 per bushel. Before the increase, the market price of cranberries was 89 cents. What will happen to the market price in the market? The market price will ______________. ​[The next question asks about the quantity sold.]

a not change

b increase

c decrease

d One cannot tell.

2. If a city places a tax on a good, what will happen to the consumer surplus gained from its consumption? The consumer surplus will:

a increase.

b decrease

c stay the same as producers will pay the tax.

d One cannot tell.

3. Tastes change so that demand for a product falls. At the same time tax rates on the product paid by the producers were lowered. Given that output increased and prices fell as a result, which change had the largest effect?

a It is impossible to tell.

b The change in tastes

c The change in taxes.

d They were likely about the same size.

4. Supply decreases in a market and demand increases. The price in the market will:

a increase

b decrease

c not change

d could either increase or decrease

5. Suppose a group of competitive producers can produce two different goods (shovels and hammers) with basically the same resources. Most are currently producing many shovels and fewer hammers. The demand for hammers increases. What is likely to happen in the market for shovels?

a The equilibrium quantity will increase; the equilibrium price will decrease.

b The equilibrium quantity will decrease; the equilibrium price will increase.

c The equilibrium quantity will increase; the equilibrium price will increase.

d The equilibrium quantity will decrease; the equilibrium price will decrease.

e Nothing will likely change in the shovel market.

Answer 1

1.

Before the increase, price floor= 89 cents

Now as the price floor increases to $1, the market price also increases.

It is so because of rise in minimum price means that seller can not sell at price lower than $1 which is higher than the old price of 89 cents.

Option b. increase is the correct answer.

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2.

Consumer surplus is the area above price and below demand curve.

Before tax: Consumer surplus= a+b+c+d

After tax: Consumer surplus= a

Change in consumer surplus= a-(a+b+c+d)= -(b+c+d)

It can be observed that consumer surplus decreases after tax.

Option b is the correct answer.