Four students from your economics class are sitting in a local restaurant discussing the market for coffee. Below are quotes fro
m each of the four students. All of the following quotes are logically correct except one. Which quote indicates incorrect economic analysis?A. Nicholas: "If Brazil is hit hard by such a severe freeze that half of its crop is wiped out, then the price of coffee will probably rise."B. Kendra: "If the price of caffeinated soft drinks such as Mountain Dew went down, then consumer demand for coffee would go down since they're substitutes for each other."C. Sergei: "If the demand for coffee were to increase, then I would expect the price to rise, which would then cause the demand to fall back down to its original position."D. Tasha: "If coffee drinkers expect the price of coffee to rise next month, then current demand will go up and lead to a price increase this month."
1 answer:
Answer:
D. Tasha: "If coffee drinkers expect the price of coffee to rise next month, then current demand will go up and lead to a price increase this month."
This is the only one with incorrect economic analysis
Explanation:
A. is correct because a shortage of supply would drop the price as we can see in the Graph 1 with the supply curve.
B. is correct because if the two goods are substitues then a lower price for caffeinated soft drinks like Mountain Dew would cause the consumer demand for coffe to go down because the consumers would prefer the good with lower price, rising the demand for Mountain dow in detriment of coffe.
C. is correct as we can see in the Graph 1, the increse in the demand would generate a higher price but it would make the demand go back to D1
D. is incorrect because if coffee drinkers consume more coffee this monht the price would lower.
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Answer:
Option c) how a consumer might trade off different levels of consumption of each of two goods, while staying at the same utility level.
Explanation:
This is the very definition of an indifference curve. The points in an indifference curve are the combinations of the quantities (level of consumption) of two different goods which will produce the very same utility to the consumer. The consumer will perceive any of those combinations as having the same utility for him.
For example, a usual graph of various indifference curves will look like the graph attached.
In this graph the combination of 2 pairs of shoes and 15 pants will be perceived as having the same utility as the combination of 5 pairs of shoes and 4 pants. Both are combinations in the same indifference curve, the green one, and the utility of any combination lying in that green curve will be rated the same: u = 1.
