Question

Which factor will NOT cause a change in demand?

A)an increase in the price of a complement in consumption

B) a decrease in income

C) a decrease in the price of the good itself

D)an increase in the number of consumers

Electricity is essential in the production of aluminum. If electricity prices increase:

A)the supply curve for aluminum shifts leftward.

B) the supply curve for aluminum shifts rightward.

C) aluminum becomes cheaper because it is a substitute good for electricity.

D) aluminum is turned into an inferior good.

The effect of a decrease in income on a normal good is to shift the:

A)supply curve to the left, increasing the equilibrium price and reducing equilibrium output.

B)supply curve to the right, reducing the equilibrium price and increasing equilibrium output.

C)demand curve to the left, reducing both equilibrium price and output.

D)demand curve to the right, increasing both equilibrium price and output.

Butter is a substitute for margarine in consumption. If the price ofmargarine drops, we would expect to see:

A)the price of butter rise and the quantity demanded of butter fall.

B) the price of butter fall and the quantity demanded of butter rise.

C) both the price of butter and the quantity demanded of butter rise.

D) both the price of butter and quantity demanded of butter fall.

If supply increases and at the same time demand decreases, equilibrium price:

A)decreases and equilibrium quantity is indeterminate.

B)increases and equilibrium quantity decreases.

C) is indeterminate and equilibrium quantity increases.

D) is indeterminate and equilibrium quantity decreases.

Answer 1

1.

Since the law of demand stats that there is an opposite relationship between price and quantity demanded and other factors which affect the demand remains same. The demand curve shows an inverse relationship between price and quantity demand.

The demand determinant are; its own price, price of substitute goods, price of complementary goods, income of the consumer and taste and preferences of the consumers.

In case of change in the quantity demand, there will be movement along the demand curve and in case of change in the demand, there will be shift of the demand curve.

Therefore a decrease in the price of the good itself will not cause a change in the demand.

Hence option C is the correct answer.

2.

Since electricity is an essential for the production of aluminum, therefore if the electricity prices increase, so the cost of production will increase. Hence firm will produce less aluminum, so the supply of aluminum will decrease. Hence the supply curve for aluminum shifts leftward.

Hence option A is the correct answer.

3.

Normal good is that good which has positive income elasticity. It means with the increase in the income, the quantity demand for the normal good increases.

On the other hand, inferior good has negative income elasticity. It means with the increase in the income, the quantity demand for the inferior good decreases.

Since income elasticity measures the effect of change in the income of the consumers on the demand for the goods.

Income elasticity of demand of X = % change in the quantity demand of good X/ % change in the Income.

Hence it can be said that the effect of a decrease in income on a normal good is to shift the supply curve to the left, increasing the equilibrium price and reducing equilibrium output.

Hence option A is the correct answer.

4.

Cross-price elasticity of demand= % change in the quantity demand/ % change in the price

When the cross-price elasticity demand sign is positive, then both goods will be substitute goods.

The price of substitute goods and demand for its substitute goods are positively related.

When the cross-price elasticity demand sign is negative, then both goods will be complementary goods

The price of complement goods and demand for its complement goods are negatively related.

Therefore when Butter is a substitute for margarine in consumption. If the price of margarine drops, we would expect to see both the price of butter and quantity demanded of butter fall. This is because decrease in the price of margarine leads to decrease in the demand for butter, therefore the demand for butter curve shifts leftward. Hence both equilibrium price and quantity decrease.

Hence option D is the correct answer.

5.

When the supply increases and at the same time demand decreases, equilibrium price will decrease definitely but the equilibrium quantity is indeterminate. This is because supply curve shifts rightward and demand curve shifts leftward.

Hence option A is the correct answer.