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QUESTION 13 Consider the market for new residential houses in the Richmond metropolitan area. If the local economy "booms" and incomes rise, we would expect the average home price to fall the average home price to rise home prices to stay stable home prices to fluctuate wildly depending on the whether the Washington Redskins are winning or losing QUESTION 14 Consider the market for Diet Coke. If the price of Diet Pepsi (a substitute good) increases, then we would expect demand for Diet Coke to increase (shift up/right) demand for Diet Coke to decrease (shift down/left) supply of Diet Coke to increase (shift down/right) supply of Diet Coke to decrease (shift up/left) QUESTION 15 What happens to equilibrium price and quantityy when both supply and demand increase quantity decreases, price depends on the size of each shift price decreases, quantity depends on the size of each shift price increases, quantity depends on the size of each shift quantity increases, price depends on the size of each shift

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Question 13 Option B the average home price to rise When the economy booms and thus causes an increase in income, average home price will rise. During economic boom, income and demand increases. General Price level will also show a tendency to increase Question 14 Option A demand for Diet Coke to increase Diet Coke and Diet Pepsi are substitute goods. An increase price of Diet Pepsi will make Diet Coke relatively cheaper. People will substitute relatively cheaper good for expensive one. Therefore, demand for Diet Coke will increase and this will shift the demand curve to Diet Coke to the right Question 15 Option D - quantity increases. Price depends on the size of each shift. When both the demand for and supply of a commodity increases, equilibrium quantity will increase for sure. But the change in price is indeterminate. Price change depends upon the size of each shift which in turn depends upon elasticities