Question

4. Which of the following statements is (are) correct?
(x) A demand curve illustrates the negative relationship between price and quantity demanded.
(y) A demand curve is the downward-sloping line relating the price of the good with the quantity demanded.
(z) When we move up or down a given demand curve, price changes but demand is held constant.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

5. A decrease in quantity demanded
A. shifts the demand curve to the left.
B. is due to a rise in the price and results in a movement upward and to the left along a demand curve.
C. is due to a rise in the price and results in a movement downward and to the right along a demand curve.
D. is due to a drop in the price and results in a movement downward and to the right along a demand curve.
E. is due to a drop in the price and results in a movement upward and to the left along a demand curve.

In a market economy,
A. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand.
B. quantity demanded determines quantity supplied and quantity supplied, in turn, determines prices.
C. supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources.
D. supply determines demand and demand, in turn, determines prices.
E. demand determines supply and supply, in turn, determines prices.

Answer 1

4. x and y only.

Demand curve shows a negative relation between price and quantity, that is as price rises, demand falls and vice versa. Because of its inverse relation, it is a downward sloping line. When we move up or down a demand curve price changes and demand also changes.

5. A decrease in quantity demanded is due to a rise in price and results in a movement upward and to the left along a demand curve. When there is a change in demand due to price change, there occurs a movement along the demand curve. When quantity demanded falls because of rise in price, there is an upward movement along the demand curve. The demand curve is slopes downward from left to right.

6. In a market economy, the allocation of scarce resources determines prices and prices inturn determine supply and demand. Quantity demanded and supplied depends on price. Price and quantity demanded has an inverse relationship where as price and quantity supplied is positively related.