Question

Economics 1101: Principles of Microeconomics Bonus Assignment 1 (demand when comune nome 1) da 1 as consomer income 1) Question 1.5 Suppose good A is an inferior good. Suppose good B is a normal good. Suppose good A and (demand for good C are substitutes. Suppose good B and good D are complements power when the price of the other depund T w en price of Question 1 If the cost of production of good A increases, how are the equilibrium price of good A thie of the and the equilibrium quantity of good A affected? object is dan FA A. The equilibrium price of good A goes up & The equilibrium quantity of good A goes e bylos iting went into B. The equilibrium price of good A goes down & The equilibrium quantity of good A goes down (C.)The equilibrium price of good A goes up & The equilibrium quantity of good A goes down D. The equilibrium price of good A goes down & The equilibrium quantity of good A goes up E. None of the above is correct Question 2 If the price of good D increases, how are the equilibrium price of good B and the equilibrium quantity of good B affected? A. The equilibrium price of good B goes up & The equilibrium quantity of good B goes up B. The equilibrium price of good B goes down & The equilibrium quantity of good B goes down C. The equilibrium price of good B goes up & The equilibrium quantity of good B goes down D. The equilibrium price of good B goes down & The equilibrium quantity of good B goes up E. None of the above is correct Question 3 Suppose there is an effective price floor at P in the market of good B. If an income decreases in an economy, which of the following statement is correct? A. Quantity demanded increases at P. B. Quantity demanded decreases at P. C. Quantity supplied increases at P. D. Quantity supplied decreases at P. E. None of the above is correct Question 4 Suppose there is an effective price ceiling at in the market of good A. If the cost of production for good A decreacs, which of the following statement is correct? A. Quantity demanded increases at P. B. Quantity demanded decreases at R.

Answer 1

1. The equilibrium price of good A goes up and equilibrium quantity of good A goes down. Since, good A and C are substitutes , a rise in the price of good A will induce consumers to switch to good C whose price has remained unchanged.

2. The equilibrium price of good B goes up and equilibrium quantity of good B goes down. Since good B and good D are complimentary goods, any fall in price of good B will lead to rise in quantity of good B and good D and vice versa.

3. Quantity demanded decreases at P1. Since, the income in the economy falls, consumers find it expensive to purchase good B more than equilibrium price that is the price floor fixed by government. Hence, demand decreases.

4. Quantity supplied increases at P2. Since, cost of production falls, producers find it more profitable to increase the production and sell at a price P2.