2. In the capitalist societies, social planning has contributed to market effici

Question

2. In the capitalist societies, social planning has contributed to market efficiencies. A-Tue 3. Ceters aribu an increase in disposable income is mostikely to datu 14 4. Suppose the demand and supply functions of a market can be specified as follows 5. Alluding to question 4, an increase in the price will cause: (A) Total revenue to fall (B) B- False demand (B) A change in quantity demanded (C) A decrease in supply (D) A loss of Qd-60-2p and Qs =-20 + 2p. The Equilibrium price and quantity must be: revenue (A)$2 and 40 units (B) $20 and 20 units (C) $40 and 2 units (D) $30 and 20 units 114 Total revenue to increase (C) An increase in the number of buyers (D) All of the above

Explanation / Answer

(2) True

Social planning leads to lower deadweight loss and higher efficiency.

(3) (A)

Higher disposable income increases the demand for the good (assuming the good is normal).

(4) (B)

In equilibrium, Qd = Qs

60 - 2p = - 20 + 2p

4p = 80

p = 20

Q = 60 - (2 x 20) = 60 - 40 = 20

(5) (A)

Price elasticity of demand = (dQd / dP) x (P / Qd) = - 2 x (20 / 20) = - 2

Since absolute value of elasticity is higher than 1, demand is elastic and with elastic demand, a rise in price will decrease total revenue.

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