Thread: Eco MC questions

DD.pdfC1.pdf

I've attached the questions above,
For the first one my answer was B cause the price level is rising as inflation is positive.
The answer turned out to be D, I don't understand why

The second question should be something to do with the difference in the supply curve with tax and the supply curve without tax, I could draw each curve but there must be a faster way. Answer is C.

Originally Posted by elieh

DD.pdfC1.pdf

I've attached the questions above,
For the first one my answer was B cause the price level is rising as inflation is positive.
The answer turned out to be D, I don't understand why

You are right, unless there is some technicality that I am unaware of the buying power of a unit of currency fell as prices rose (as presumably did wages).

CB

With respect to the second Q, you're on the right track that it has to do with the noted change in the supply curve.

No graph needed; a quick comparison of the last two columns shows that the S curve shifted north by exactly $3, at least for the relevant range we're given. For example, 230 units were supplied to the market at a price of 14; following the imposition of the tax a selling price of 17 is required to induce that same level of supply. 290 was the willing supply at 15; post-tax it takes a price of 18 to coax that much production. Ditto right up the chart.