Question

HOMEWORK SET 3A MARKET DEMAND AND SUPPLY Questions 1 and 2 refer to the following graph, which shows hypothetical economy's demand for music on compact discs (CDs). Assume music CDs are a normal good. 20.00 Price per 15.00 compact 16.00 diec (dollars) 10.00 7.50 6.00 10 15 20 30 40 Guantity of compact disco millons per year) I. According to the graph, if the price of music CDs falls from $20 to $15 per disc, then a. the demand curve for music CDs will shift to the left by 5 million per month. b. there will be surplus of 5 million music CDs per month. c. the quantity demanded of music CDs will rise from 15 to 20 million per month. d. consumers will continue to purchase 15 million music CDs per month. 2. Which of the following could shift the demand curve for music CDs to the left? a. A rise in the price of CDs. b. A rise in people's incomes. c. A fall in the cost of manufacturing CDs. d. A fall in the price of downloading digital music files. 3. The horizontal sum of all the individual demand schedules for lumber a. is the market demand for lumber. b. is the market supply of lumber. c. will usually be a vertical line. d. must be an upward-sloping curve.

Answer 1

1.

Since the law of demand stats that there is an opposite relationship between price and quantity demanded and other factors which affect the demand remains same.

The demand determinant are;

Its own price, price of substitute goods, price of complementary goods, income of the consumer and taste and preferences of the consumers.

The change in the quantity demand arises when price of the goods changes and there will be change in the demand when factors other than price changes.

As it can be seen in the graph, if price of music CDs falls from $20 to $15 per disc, then quantity demanded of music CDs will rise from 15 to 20 million per month.

Hence option c is the correct answer.

2.

Since digital music files is substitute for CDs, so a fall in the price of downloading digital music files leads to leftward shift of the Demand curve.

Hence option d is the correct answer.

3.

The horizontal sum of all the individual demand schedules for lumber is the market demand for lumber.

Hence option a is the correct answer.