1. If supply is relatively elastic compared to demand in an efficient market, th
ID: 1107170 • Letter: 1
Question
1. If supply is relatively elastic compared to demand in an efficient market, then we know that a production subsidy will
a. raise the welfare of the sellers by more than the welfare of the buyers.
b. increase producer surplus more than consumer surplus.
c. decrease quantity supplied.
d. increase demand.
e. none of the above.
2. When an economy produces on its PPF
a. it is producing the maximum amount it will ever be able to produce
b. it is producing efficiently
c. it is using up all of its resources in production
d. it cannot gain from trade
e. all of the above
3. If the price of tea decreases, what happens to the supply of tea?
a. It doesn't change
b. It decreases
c. Nothing happens to supply, but the demand for tea increases.
d. Nothing happens to supply, but the demand for tea increases.
e. It increases
Explanation / Answer
1. none of the above.
Explanation: The inelastic side of the market gets the higher benefit of the subsidy. So, consumers get more utility and surplus from the subsidy. So, option a and b are invalid. Also, the subsidty will increase supply and not decrease it. So, option c is invalid. Also, the subsidy will not decrease demand. So, option d is also invalid.
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