1 Point each for each of the rest: 2) Eddie owns a small farm. According to the
ID: 1151603 • Letter: 1
Question
1 Point each for each of the rest: 2) Eddie owns a small farm. According to the figure below, what is Eddie's opportunity cost, in terms of bushels of potatoes, of growing one more bushel of potatoes? Corn (bushels/yr.) 10,000 Eddie's Production Possibility Frontier 40,000 Potatoes (bushels/yr.) a. 1/4 b. 10,000 C. d. 40,000 3) Air conditioning and electric fans are substitutes. That is, the more you have of one, the less you need the other. If the price of air conditioning decreases, what happens to the market for electric fans? The demand curve shifts right, increasing the equilibrium price of fans a. b. The demand curve shifts left, decreasing the equilibrium price of fans c. The supply curve shifts right, decreasing the equilibrium price of fans d. The supply curve shifts left, increasing the equilibrium price of fans e. Nothing changes There is a market for stocks. In particular, the stock for Darby's Restaurants usually trades at a price of $40 per share. One morning, a glitch in the stock exchange's software accidentally set the price of Darby's Restaurants stock to $50. Nobody was able to buy or sell Darby's stock at lower prices. In telling this story in their economics class, a student said "Until the glitch was fixed, the higher price meant that demand decreased." What is wrong with this sentence? 4) a. Demand didn't decrease, quantity demanded did. b. In addition to demand decreasing, supply increased. c. Quantity demanded didn't actually change d. Demand should have increased, not decreased. 5) Which of the following will lead to an increase (rightward shift) in the current demand for a normal good? a. An increase in supply b. An expectation of lower prices in the future c. An increase in income d. A decrease in the price of a substitute goodExplanation / Answer
2) The opportunity cost of one more bushel of potatoes= 10000/40000=1/4 bushel corn per year. Option a is correct.
3) As electric fans and air conditioning are substitutes, decrease in the price of air-conditioning will decrease the demand for electric fans. As people now tend to buy the cheaper airconditioning. So the demand curve for electric fans shifts to the left. As a result equilibrium price will be decreased. Option b is correct.
4) Change in quantity demand results from changes in the price. Changes in demand resulting from changes in the factors other than the price. Here higher stock price decrease the quantity demand of stock. Option a is correct.
5) For a normal good, demand is increased when income is increased. And demand curve shifts to the right. Option c is correct.
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