Question

d) the price and the quantity at equilibrium.
a decrease in the supply of a good will cause the producer surplus to:
a) definitely increase.
b) definitely decrease.
c) remain the same, while consumer surplus decreases.
d) the effect is uncertain without more information.
which of the following events would cause the demand curve for cars (a normal good) to shift to the left?
a) an increase in the price of gasoline, a complement.
b) a successful advertising campaign for cars.
c) an increase in the price of steel, an input.
d) a decrease in the price of cars.
if the price elasticity of supply for a good is 0.5, and the price increases by 20%, the quantity supplied will:
a) increase by 10%.
b) decrease by 10%.
c) increase by 40%.
d) decrease by 40%.
when a country that exports a good opens to international trade, who are the \winners\ and \losers\?
a) domestic producers win, and domestic consumers lose.
b) domestic consumers win, and domestic producers lose.
c) both domestic producers and consumers win.

Explanation:

1. A decrease in supply shifts the supply curve left - ward. This reduces the producer surplus as the equilibrium quantity falls and the price may adjust in a way that reduces the area representing producer surplus. So, a decrease in the supply of a good will cause the producer surplus to definitely decrease.
2. For a normal good like cars, an increase in the price of a complement (gasoline) will lead consumers to demand fewer cars at each price level, shifting the demand curve for cars to the left.
3. The price - elasticity of supply formula is $E_s=\frac{\%\text{ change in quantity supplied}}{\%\text{ change in price}}$. Given $E_s = 0.5$ and $\%\text{ change in price}=20\%$, we can solve for $\%\text{ change in quantity supplied}$ as $\%\text{ change in quantity supplied}=E_s\times\%\text{ change in price}=0.5\times20\% = 10\%$. Since the price increased and supply is elastic (in a positive - relationship sense here), the quantity supplied will increase by 10%.
4. When a country that exports a good opens to international trade, domestic producers can sell more at a higher price (due to access to a larger market), and domestic consumers may face higher prices and consume less. So, domestic producers win and domestic consumers lose.

Answer:

1. b) Definitely decrease.
2. a) An increase in the price of gasoline, a complement.
3. a) Increase by 10%.
4. a) Domestic producers win, and domestic consumers lose.