Question

18. Two goods, X & Y, all called complements if a) An increase in Px causes more Y to be bought. b) An increase in Px causes less Y to be bought. c) An increase in Py causes less Y to be bought. d) An increase in income causes more of both X & Y to be bought. 19. If good X is a normal good and its price rises, then quantity demanded a) May or may not fall. b) Will always fall. c) Will always rise. d) Will remain unchanged. 20. An individual's demand curve a) Represents the various quantities that a consumer is willing to purchase of a good at various price levels. b) is derived from an individual's indifference curve map. c) Will shift if preferences, prices of other goods, or income change. d) All of the above. 21. An increase in quantity demanded is represented by a) A shift outward of the entire demand curve. b) A shift inward of the entire demand curve. c) A movement along the demand curve in a southeasterly direction in response to a decline in the good's price. d) A movement along the demand curve in a northwesterly direction in response to a decline in the good's price.

Answer 1

Answer

18)

Two goods are complementary goods if increase in price of one good results in decrease in demand of other. Thus X and Y are complementary goods if increase in price of good X(Px) will result in decrease in demand of Y.

Hence, the correct answer is (b) An increase in Px causes less Y to be bought.

19)

Substitution effect is always opposite to price change i.e. as price increase then substitution effect will result in decrease in quantity demand and vice versa. If price rises then real income will decrease and as it is a normal good then decrease in income will result in decrease in quantity demand. Thus income effect will also result in decrease in quantity demand. Thus both Income and substitution effect will result in decrease in quantity demand.

Hence, the correct answer is (b) will always fall.

20)

Demand curve shows the quantity that a consumer demanded at various possible prices.

Hence, the correct answer is (a) Represents the various quantities that a consumer is willing to purchase of a good at various price levels.

21)

Change in quantity demand is represented by movement along demand curve and as here there is increase in quantity demand and demand is downward sloping, this will result in downward movement along demand curve and hence, there is movement in a southeasterly direction.

Hence, the correct answer is (c) A movement along the demand curve in a southeasterly direction in response to a decline in the good's price.