Question 1
To conduct a partial equilibrium analysis of a change in consumer preferences toward coffee and away from tea, you must consider
◦ changes in the equilibrium price and quantity of coffee.
◦ changes in the amount of resources allocated to the production of coffee.
◦ changes in the price of resources allocated to the production of coffee.
◦ All of these
Question 2
Suppose that a town has two major bottling plants. One of these bottling plants is unionized and the union has just negotiated a 7% wage increase each year for the next two years. Which of the following is most likely to occur?
◦ The price of labor in the unionized bottling plant will increase, but there will be no changes in the price of labor in the nonunionized bottling plant.
◦ The price of labor will change in both the unionized and nonunionized bottling plants, but no other input markets will be affected.
◦ The price of labor will change in both the unionized and nonunionized bottling plants. Employment of labor and other inputs is also likely to change in both bottling plants.
◦ The only effect will be that the price charged by the unionized bottling plant will increase to cover the additional costs of labor.
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