Question

1) Suppose that the demand for good Y is given by the equation: Qdy = 200- 2Py + 3Px, where Px is the price of good X and Py is the price of good Y. Based on this equation we can conclude that:

A) Good X and good Y are complementary goods

B) When the price of X goes down the quantity demanded of Y goes up

C) Good X and good Y are substitute goods

D) When the price of X goes up the quantity demanded of Y goes down

2) Suppose that the demand for good Y is given by the equation: Qdy = 40- 2Py + Px, where Px is the price of good X and Py is the price of good Y. If Py is $10 , and Px is $4 , what is the consumer surplus in market Y?

A) $8

B) $128

C) $64

D) $16

3) A movement downward and to the right along a demand curve is called a(n)

A) Decrease in demand.

B) Increase in demand.

C) Increase in quantity demanded.

D) Decrease in quantity demanded.

4) Which of the following examples demonstrates the law of demand?

A) Sally buys fewer Snickers at $0.80 per Snickers after the price of Milky Ways falls to $0.50 per Milky Way.

B) Matt buys less donuts at $0.80 per donut than at $0.25 per donut, other things equal.

C) Lisa buys fewer muffins at $1.00 per muffin than at $1.50 per muffin, other things equal.

D) After Sam got a raise at work, he bought more pretzels at $2.50 per pretzel than he did before his raise.

Answer 1

1.

C

Since increase in price of good X is increasing the output of good Y, then good X and Y are substitutes to each other.

2.

$144

Working note:

At a given value of Px and Py,

QY = 40 - 2*10 + 4 = 24 units

When,

Qy = 0 and Px = $4

Then

0 = 40-2*Py + 4

Py = 44/2 = $22

So,

Consumer surplus = (1/2)*(22-10)*24

Consumer surplus = $144

3.

C

Since the movement is downward and along the demand curve, then it is related to quantity demanded that is increasing.

4.

B

In the given statement that is related to MATT, the quantity demanded decreases with increase in price. It is the example of law of demand.