Last year a firm made 1000 units of its product available at

Last year a firm made 1,000 units of its product available at a price of $5 per unit. This year the firm will still make 1,000 units available, but only if the price is $7 per unit. What is most likely to have happened? a. Quantity supplied has increased b. Supply has decreased C. Supply has increased d. Quantity supplied has decreased e. Demand has increased 4.

Solution

(4) (e)

If demand increases but supply remains unchanged, price increases.

(11) (b)

It\'s a normative statement because it\'s a judgmental and subjective statement whose validity is not established per se.

(15) (d)

For Alice, CDs are inferior good because their quantity demanded declines with increase in income.

(16) (d)

Utility is maximized when

MU(X) / PX = MU(Y) / P(Y)

This condition is fulfilled when Q = 2.

Total utility = Utility from X + utility from Y = 42 + 130 = 172

Q	TU (X)	TU (Y)	MU (X)	MU (Y)	MU(X) / PX = MU(X)/2	MU(Y) / PY = MU(Y)/5
1	24	85
2	42	130	18	45	9	9
3	56	160	14	30	7	6
4	66	185	10	25	5	5
5	74	200	8	15	4	3
6	80	210	6	10	3	2
7	84	215	4	5	2	1