ECON 214 Midterm - ECON 214 Midterm Question 1: The three...

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1ECON 214 Midterm Question 1: The three basic questions that must be answered in any economic system are: What shall be produced? How shall I be produced? How much of what will each member of society get? These questions need to be answered simultaneously because they all depend on each other. For instance we cannot answer how a product shall be produced if we don’t answer what it is. And you cannot know how something shall be produced if you don’t know how much each member of society will get. So because each question is dependent on the other, the questions must always be answered simultaneously.
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Question 2: A) Equilibrium is Q = Q 25,175 - 198P = 1,150 + 167P 25,175 - 1,150 = 198P + 167P 24,025 = 365P P = 65.82 The equilibrium price for a pillow would be $65.82 B)
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Question 3: A) Quantity would go down and price would go up. B) Quantity would decrease and price would increase. C) Both price and quantity would increase. D) Surprisingly, because supply and demand would both increase to some extent, quantity
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would increase and price would also increase, because there would still be demand for the product. E) I. SUV’s Both quantity and price would decrease. II. Woolen sweaters Both quantity and price would increase. III. Corn Price and quantity would increase. Demand increases because more ethanol would be produced.
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Question 4: The equilibrium occurs at the point where the supply and demand curves intersect (labeled E 1 ). The reason it must occur here is because this is the most consumption that is demanded for the supply. For example if the equilibrium was higher on the supply curve (E 2 ) then a person would create so much more supply than what is demanded and would end with excess products. Also if the equilibrium were to be placed randomly on the graph (E 3 ) then you would not get the highest possible consumption because you would be producing less than you could and less of which it is demanded. So basically if the equilibrium were anywhere else you either would not be making enough of the product to thrive or you could make too much and end up with excess.
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Question 5: The benefit of government regulation in what may be produced is that there cannot be any products made that are harmful to the people buying them. It also prevents products from being produced that may harm the people creating them. One cost of government regulation is
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ECON 214 Midterm - ECON 214 Midterm Question 1: The three...

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