Question

When consumers are willing to buy less than producers are willing to sell:
A. there is excess supply of the product in the market and the price will fall.
B. there is excess demand for the product in the market and price will rise.
C. there is excess supply of the product in the market and the price will rise.
D. there is excess demand for the product in the market and price will fall.
Assume that farmers can use their land for either corn or soy beans. If corn prices rise and farmers plant
more corn we can expect the supply of soy beans to ____ and the price of soy beans to ____ .
A. increase; increase C.decrease; increase

B. increase; decrease D.decrease; decrease

. Assume that the value of the own-price elasticity of demand for a service is – 2.0. If there occurs a 10%
increase in the price of the service, we would expect that quantity demanded:
A. would fall by 5% and total revenue would fall.
B. would fall by 5% and total revenue would increase.
C. would fall by 20% and total revenue would fall.
D. would fall by 20% and total revenue would increase.
13. If food is considered a “necessity”, based upon a positive but small income elasticity, then as household
incomes rise, the fraction, or share, of household budgets devoted to food would:
A. rise. B. remain the same. C. fall.

Answer 1

1> B There is excess demand for the product in the market and price will rise.

Since the demand for that good is higher than the supply(producer's willingness to sell), therefore there is excess demand and as a result, price will rise so that there is an equilibrium in the market.

2> B. increase; decrease

Since farmers will produce more corns, the supply of corns in the market will rise and when supply increases price falls.

3> C would fall by 20% and total revenue would fall.

Elasticity is the ratio of percentage change in quantity and percent change in price, so we have

%change in quantity / %change in price = elasticity

%change in quantity / 0.1 = -2

%change in quantity = -0.2

Since the quantity supplied is in the elastic region, so the revenue will fall.

4> C. fall.

As income rises, people tend to consumer more luxury goods and smaller share of necessary goods.