1 Generally over which time period will a firm be able to re

1. Generally, over which time period will a firm be able to respond most to a change in price?
a. in one month
b. in six months
c. in one year
d. in five years

2. Market demand is given as QD = 60 – P. Market supply is given as QS = 3P. Which legally imposed price would constitute a binding price floor?
a. $9
b. $13
c. $15
d. $18

3. Suppose that the incomes of buyers in a particular market for a normal good increase and there is also an increase in input prices. What would we expect to occur in this market?
a. The equilibrium price would increase, but the impact on the amount sold in the market would be ambiguous.
b. The equilibrium price would decrease, but the impact on the amount sold in the market would be ambiguous.
c. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
d. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Solution

1.C

it depends more on elasticity.The more time a producer has to respond to price changes the more elastic the supply.Supply is normally more elastic in the long run than in the short run for produced goods, since it is generally assumed that in the long run all factors of production can be utilised to increase supply, whereas in the short run only labor can be increased, and even then, changes may be prohibitively costly.

2.D

for equilibrium 60-P=3P

P= $15

A price floor is the lowest legal price a commodity can be sold at.For a price floor to be effective, it must be set above the equilibrium price. hence price must be set at $18.

3. A

an increase in the in the income of consumers for normal good will increase the demand for good and an increase in the input price would decrease the supply hence resulting in the rise of equilibrium price but ambigous for equilibrium quantity.