II. For the following questions label each statement as True or False and explain why you...

II. For the following questions label each statement as True or False and explain why you choose your answer.

3. True or False When both supply and demand shift you can definitely tell what happens to one variable and the change in the other is indeterminate.

4. True or False An increase in price will cause total surplus to increase.

Solutions

Expert Solution

3. The given statement is True that when both supply and demand shift, you can definitely tell what happens to one variable and the change in the other is indeterminate.

For example- Suppose both supply and demand increase. Increase in demand increases both equilibrium price and quantity. Increase in supply decreases equilibrium price and increases equilibrium quantity. Therefore, you can say that, equilibrium quantity will definitely increase but equilibrium price may increase or decrease based on the magnitude of shifts.

When both curves shift, the curve that shifts by the larger magnitude determines the effect on the undetermined equilibrium object.

4. An increase in price from the equilibrium price, decreases quantity demanded and increases the quantity supplied. However, the lower amount will be traded. Total surplus will be lower than it is if the market is operating at equilibrium.

Therefore, the given statement is False.

Rahul Sunny answered 1 year ago

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