Question

1) A lower price for batteries would result in a(n)

A) decrease in the demand for flashlights.

B) increase in the demand for batteries.

C) Increase in the demand for flashlights.

D) Decrease in the demand for batteries.

2) If Kindle e-readers and Nook e-readers are substitutes, a lower price for Nooks would result in a(n)

A) Decrease in the demand for Kindles.

B) Increase in the demand for Nooks.

C) Increase in the demand for Kindles.

D) Decrease in the demand for Nooks

3) Which of the following demonstrates the law of supply?

A) When shirts producers expected shirt prices to rise in the near future, they decreased their current supply of shirts.

B) When salt prices rose, salt sellers decreased their quantity supplied of salt.

C) When the price of soccer balls rose, soccer balls sellers increase their quantity supplied of soccer balls.

D) When computer production technology improved, computer producers increased their supply of cars.

Answer 1

1. Option C.

• When the price of batteries decline, the demand for flashlights will rise.
• This is because batteries are the intermediate goods used in the flashlights and a lower price of batteries will eventually increase the flashlights demand.

2. Option A.

• It is given that kindle e-readers and Nook e-readers are substitutes to each other and we know that substitute goods are those goods whose demand increases when the price of another good increases and vice versa.
• Hence, when the price of Nooks fall, the demand for kindle will also fall due to the substitution effect.

3. Option C.

• The law or supply states that all else held constant, the quantity supplied increases when the price increases and falls when the price falls.
• Hence, the firm's will produce less of any good when it's price falls and will produce more when it's price rises.
• Therefore, when the price of soccer balls rise, the sellers increase their quantity supplied of soccer balls.