Question

QUESTION 36 If the producers of cotton shirts face higher cotton prices, which of the following is likely to occur? The supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls. The supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity rises. The supply of cotton shirts increases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls. The supply of cotton shirts increases, the equilibrium price of cotton shirts falls, and the equilibrium quantity rises. QUESTION 37 Butter is a substitute for margarine. If the price of margarine drops, we would expect to see: the price of butter rise and the quantity of butter traded fall. the price of butter fall and the quantity of butter traded rise. both the price of butter and the quantity of butter traded rise. both the price of butter and quantity of butter traded fall.

Answer 1

36. A. The supply of cotton shirts decreases, the equilibrium price of cotton shirts rises, and the equilibrium quantity falls.
(As cotton price increase, cost of producing shirts increase which decreases supply. So, price increase and quantity decrease.)

37. D. both the price of butter and quantity of butter traded fall.
(Decrease in price of margarine increases its quantity demanded, and the demand for its substitute, butter, will decrease. So, both price and quantity of butter will decrease.)

38. B. decrease
(Increase in supply decreases price and decrease in demand also decrease price. So equilibrium price will decrease.)