Question

51 20 15 10 D2 5 D 10 20 30 40 C Assume the market in the graph shown was originally at an equilibrium with demand D and supply S. Suppose Demand shifts and becomes D>. What might have caused such a shift? 5) A) The good became more popular. B) Substitutes for this good became less expensive. 9 The good became cheaper to produce. D) People expect the price of this good to drop in the near future. 6) Assume the graph shown represents the market for button-up shirts and was originally in equilibrium with D and S. What type of shock might cause a shift from D to D,7 63 A) The price of ties went up. B) The price of sweatshirts went up. 9 The price of buttons has increased D) None of these things would cause such a shift 7 Bob just got laid off and now has no income. We can assume that A) his demand for all inferior goods will increase. 71 Sec 1 Pages: 0 of 517 3 of 4 Words: ? PXO F3 F4 FS F6 F8 F9 $ & 96

Answer 1

Q5. Given the above graph, a rightward shift in the Demand curve from D to D2 can be caused because of an increase in the popularity of the good resulting in an increase in demand.

A fall in the price of substitutes and a fall in price expectation in the future leads to a leftward shift in the demand curve while fall in input prices shift the supply curve.

Ans. (A)

Q6. Given that the above graph represents the market for button-up shirts, sweatshirts and button-up shirts are substitutes. An increase in the price of sweatshirts will lead people to substitute sweatshirts for button-up shirts, since they are now relatively cheaper. As a result, the demand for button-up shirts will increase, shifting from D to D2.

ans. (B)

Q7. Inferior goods are goods whose demand increases with a fall in income and vice versa. Since Bob's income decreases, his demand for inferior goods will increase.

Ans. (A)