Question

18) Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease? 

A) an increase in consumer income 

B) a freeze that sharply reduces potato output 

C) a decrease in consumer income 

D) a technological advancement that results in a bumper crop of potatoes

Answer 1

9. Inferior goods are those goods whose income effect is negative which means increase in income decreases demand of inferior good while decrease in income increases demand of inferior good.

An increase in income decreases demand of potatoes and shifts demand curve leftwards causing decrease in equilibrium price and quantity.

Price PT D' Q' a Quantity

Answer is A) an increase in consumer income.

10) C) S₁ to S₂

Increase in the number of firms in the market increases supply of good in the market. As supply increases due to change in factors other than the price of good itself, supply curve shifts rightwards.

11) D) Research finds that consumption of olive oil reduces the risk of heart disease.

When consumers knows that consumption of olive oil reduces heart disease risk then they demand more olive which increases price of olive oil in the market. At higher price, producers wants to sell more.