Question

Problem Set #2 Figure 1 Figure 2 D D e 22 1. In Figure 1, the price falls from p, to P2. As a result (check all that are true): a. The demand increased. *b. The quantity demanded increased. Xc. The demand shifted. d. The consumer's preferences changed. ( Yes or No) Could the shift shown in Figure 2 have resulted from a decrease in consumer income? Explain your answer.

Answer 1

1. Price is not a determinant of demand. Change in price causes change in quantity demanded only (a movement along the demand curve) , but it doesn't shift the demand curve.

In figure 1, if the price falls from P1 to P2, quantity demanded increases from Q1 to Q2.

Answer: option B

2. Figure 2 shows a shift of demand curve to the right, which means demand has increased. A decrease in Consumers income decreases demand, shifting the demand curve leftward.

Therefore, the given statement is not correct.

Answer: No

3. An increase in the price of compliment good will decrease quantity demanded for that good. As complimentary goods are used together, therefore increase in price of compliment good decreases demand for the good in question. This will shift the demand curve leftward.

Therefore, the given statement is not correct.

Answer: No

4. If the price of a good is set above it's equilibrium price, then quantity supplied exceeds quantity demanded. It will cause a surplus.

Therefore, the given statement is not correct.

Answer: False