Question

1. Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease?
   1. an increase in consumer income
   2. a freeze that sharply reduces potato output
   3. a decrease in consumer income
   4. a technological advancement that results in a bumper crop of potatoes       
2. Prices of Golden Eggs (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for regular eggs have dropped and consumer incomes have risen. Which of the following best explains the rising prices of Golden Eggs?
   1. The supply curve for Golden Eggs has shifted to the right while the demand curve for Golden Eggs has shifted to the left.
   2. The demand curve for Golden Eggs has shifted to the right more than the supply curve has shifted to the right.
   3. The demand curve and the supply curve for Golden Eggs have both shifted to the left..
   4. The supply curve for Golden Eggs has shifted to the right more than the demand curve has shifted to the right
3. Because of a sharp increase in the price of boys, the demand for bread (for giant consumption) has decreased. So, the high price of food leads to a
   1. leftward shift of the demand curve for bread and the supply curve of bread.
   2. leftward shift of the demand curve for bread and no shift in the supply curve of bread.
   3. leftward shift of the demand curve for bread and a rightward shift of the supply curve of bread.
   4. leftward shift of the supply curve of bread and no shift in the demand curve for bread.
   5. rightward shift of the supply curve of bread and no shift in the demand curve for bread.
4. Consider the market for bread made of grinded bones. Which of the following shifts the demand curve leftward?
   1. Studies show eating bread causes diabetes
   2. A decrease in the price of bread
   3. A decrease in the quantity demanded of bread
   4. An increase in hunger

Answer 1

Ans 1 - an increase in consumer income

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.

Ans 2 - b. The demand curve for Golden Eggs has shifted to the right more than the supply curve has shifted to the right

Normal goods are a type of goods whose demand shows a direct relationship with a consumer’s income. It means that the demand for normal goods increases with an increase in the consumer’s income

When there is a change of one of the factors of demand- like the price of the product and related goods, consumer preferences, or income- there is a corresponding change in the demand curve. For instance, if someone's income grows, then his demand for goods will increase, shifting his demand curve to the right. This will lead to a higher quantity being consumed at a higher price, ceteris paribus. Conversely, there can be a negative effect that shifts the supply curve to the left where a lower quantity is consumed at a lower price, ceteris paribus. This can occur when the price of substitutes falls or consumers begin to lose their taste for the product.

Ans 3 - b. leftward shift of the demand curve for bread and no shift in the supply curve of bread.

a change in price of a good or service typically causes a change in quantity supplied or a movement along the supply curve for that specific good or service, it does not cause the supply curve itself to shift.

Ans 4 - c. A decrease in quantity demanded of bread

Its absolutely a decrease in the quantity demanded of bread because when the demand curve shifts leftwards then it really means the demand for that particular product is decreased due to increase in the price