Question

1. If a country has an economy where people can buy and sell freely, but the government sets some price restrictions and regulations then it likely has a________ economy.

A. mixed market

B. free market

C. command

2. A decrease in the quantity supplied can result from

A. a decrease in price.

B. increased demand.

C. a decrease in supply

3. An increase in the quantity supplied can result from

A. decreased demand.

B. an increase in price.

C. an increase in supply.

4. Soon after America’s declaration of war on Japan the British colony of Malaya was overrun by advancing Japanese military forces. Malaya was the primary source of natural rubber to the US automobile industry before the war. At the same time demand for military vehicles has surged in response to massive government orders. Based on these facts, how would you predict the equilibrium price and quantity of vehicles to change after the fall of Malaya?

A. The equilibrium quantity will increase but it impossible to determine the equilibrium price change without additional information.

B. Both the equilibrium quantity and price will increase.

C. The equilibrium price will increase but it is impossible to determine the equilibrium quantity change without additional information.

Answer 1

1> A. mixed market

Since in that country, people are free to buy and sell with some government regulation, it is in neither extreme of the spectrum, so it is a mixed market.

2> A. a decrease in price.

Since supply curve is positively sloped, a fall in price will result in a fall in quantity supplied.

3> B. an increase in price.

Since supply curve is positively sloped, a rise in price will result in a rise in quantity supplied.

4> C. The equilibrium price will increase but it is impossible to determine the equilibrium quantity change without additional information.

Two events happened at that time, one is cutting the supply from Malaya leads to a fall in the supply curve or a leftward shift and at the same time, the country has a higher demand, so a rightward shift in the demand, thus there will be a rise in price but the change in quantity is uncertain.