Question

12 & 13. Wasn’t sure if my answers were right.

12 Consider a typical supply and demand framework in which Demand and Supply have their usu opes $Price (P) Quantity (Q) 0 Suppose the market is initially in equilibrium at P on the graph above. If there were a decrea demand, what would be the situation in the market if the price did not change? a. Surplus. b. Shortage. Atendency for the price to increase frorn its original level d. The market would be in equilibrium. e. None of the above. O- 13 A decrease in the price of Coke (a substitute for Pepsi) should a. shift the Demand curve for Coke to the left. b.) shift the Demand curve for Coke to the right. C cause the Demand curve for Pepsi to shift to the left. . cause no shift in the Demand curve for Pepsi. e. cause the Demand curve for Pepsi to shift to the right. 45

Answer 1

ANSWER:

12) With decrease in demand and no change in supply , the demand curve will shift towards left as when demand decreases , excess supply is there at the old equilibrium level , which makes sure that the competition increases and so the price starts to fall and so this leads fall in supply and rise in demand and this will continue , till a new equilibrium is established as there is a decrease in both equilibrium price and quantity and hence option e is the right answer.

13) both b and c are right as both coke and pepsi are substitutes and so with decrease in price of coke , the demand curve for coke will shift outwards while demand curve for pepsi will shift inwards.