ECS1501 ASSIGNMENT 6 QUESTIONS AND ANSWERS

ECONOMICS ASSIGNMENT 6 QUESTION AND ANSWERS


NB!!! Please carefully analyse the questions as they tend to slightly differ.


1. The market for good A is in equilibrium. Then the price of a substitute good
decreases and, simultaneously, the price of an input used to make good A increases.
The equilibrium price of good A will increase and the equilibrium quantity of good A will
either increase, decrease, or stay the same.
 FALSE


2. The market for good A is in equilibrium. Then a technological innovation reduces the
cost of production of good A and, simultaneously, the price of a complement good
increases. The equilibrium price of good A will increase and the equilibrium quantity will
either increase, decrease, or stay the same.
 FALSE


3. The market for personal drones (small remotely controlled unmanned flying robots)
has undergone some changes over the past two years. As a result of these changes,
the equilibrium quantity of drones has increased substantially with almost no change in
the equilibrium price. Which of the following is the most likely explanation for these
changes? Over the past two years, both supply and demand have increased.
 TRUE
4. A severe drought in Ethiopia (one of the main coffee-producing countries) coincides
with a very successful marketing campaign for the beverage. The price of coffee will
increase.
 TRUE
5. The market for good A (an inferior good) is in equilibrium. Then the average
household income increases and, simultaneously, new government regulations on the
producers of good A add to production costs. As a result, the equilibrium price of good A
will decrease and the equilibrium quantity of good A will either increase, decrease, or
stay the same.
 FALSE

, 6. Two things occur simultaneously in the market for good A: 1. there is an increase in
the price of an important input in the production of good A and, 2. there is a decrease in
the price of a complement of good A. As a result, the equilibrium price of good A will
either increase, decrease, or stay the same, and the equilibrium quantity of good A will
decrease.
 FALSE


7. A decrease in demand coupled with a decrease in supply would necessarily result in
a lower equilibrium price.
 FALSE


8. In a competitive market, supply and demand decrease simultaneously. The effect on
equilibrium quantity is a decrease.
 TRUE


9. The Board of Private Schools offers numerous educational subsidies through grants
and low-cost equipment to private schools. They also provide a lot of incentives to
learners to attend private schools. Because of this, we expect that the equilibrium price
of attending a private school will go up and the equilibrium quantity of students will go
up.
 FALSE


10. The market for personal drones (small remotely controlled unmanned flying robots)
has undergone some changes over the past two years. As a result of these changes,
the equilibrium quantity of drones has increased substantially with almost no change in
the equilibrium price. Which of the following is the most likely explanation for these
changes? Over the past two years both supply and demand have decreased.
 FALSE
11. Since one of the actors in a popular television series has been spotted wearing pink
sunglasses, pink sunglasses is a must for every fashion conscious person. At the same
time, a technological innovation reduces the costs of producing pink sunglasses. As a
result, the equilibrium price of pink sunglasses will either increase, decrease, or stay the
same, and the equilibrium quantity will increase.
 TRUE