Scribd
Upload
7 views

Tutorial 2 - Answers

Economic answer

Uploaded by

Choon Pin Chong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
7 views

Tutorial 2 - Answers

Economic answer

Uploaded by

Choon Pin Chong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

TUTORIAL 2

GT11103 ECONOMICS
Sem 2, 2023/2024
___________________________________________________________________________
Topic: Demand and Supply
Part A: Structure Questions

1) Explain why a relative price is an opportunity cost.


Answer: A relative price is the ratio of the price of one good or service to the price of another
good or service. It tells us how much of one good or service must be given up in order to
obtain more of the other good.

2) Explain the law of demand.


Answer: The law of demand states that other things remaining the same, if the price of a
good rises, the quantity demanded of that good decreases, and if the price of a good falls, the
quantity demanded of that good increases.

3) What leads to a decrease in the quantity demanded of a good or service?


Answer: The quantity demanded of a good or service decreases when the price of the product
increases.

4) List the factors change demand and shift the demand curve. Tell what happens to demand
and the demand curve when there is an increase in the factor.
Answer: One factor that changes demand is a change in income. An increase in income
increases demand and shifts the demand curve rightward for a normal good. An increase in
income decreases demand and shifts the demand curve leftward for an inferior good. A
change in the price of a substitute or complement also changes demand. An increase in the
price of a substitute increase demand and shifts the demand curve rightward while an increase
in the price of a complement decreases demand and shifts the demand curve leftward.
Expectations, the population, and preferences also change demand. If people expect their
income to increase, or if they expect the price of the good to be higher in the future, or if the
population increases (so that the number of buyers increases), or if people's preferences for
the good increase, demand increases and the demand curve shifts rightward.

5) Your friend Tony opened a pizzeria. You helped him to advertise his pizza, which is in
fact the best pizza in town. As a result, the demand for Tony's pizza increases and your
friend, noticing lines of customers, raises the price of his pizza. But then he fears that the
higher price will cause demand to decline, which will cause the price to drop. Is Tony right in
his analysis of the situation? Explain.
Answer: Tony is confusing a change in demand (a shift of the demand curve) with a change
in quantity demanded (ademand
movement
curve
along the demand curve). An increase in the price of his
pizza cannot cause the demand for his pizza to decline, that is, it cannot shift the demand
curve for his pizza leftward. The rise in the price results in a decrease in the quantity of pizza
demanded. So, Tony need not fear that the demand for his pizza will decrease as a result of a
higher price. demand curve
Part B: Multiple Choice Questions

1) The "law of demand" states that changes in


A) demand are related directly to changes in supply.
B) the quantity demanded of a good are not related to changes in the quantity supplied.
C) the quantity demanded of a good are inversely related to changes in its price.
D) demand are inversely related to changes in supply.
Answer: C

2) The price of cereal rises. As a result, people have cereal for breakfast on fewer days and
eat eggs instead. This behavior is an example of
A) a decrease in the quantity demanded of cereal because of the substitution effect.
B) an increase in the quantity demanded of eggs because of the income effect.
C) a decrease in the quantity supplied of cereal because of the substitution effect.
D) an increase in the quantity supplied of eggs because of the income effect.
Answer: A

3) A change in which of the following shifts the demand curve for hamburgers?
A) an increase in the price of the meat used to produce hamburgers
B) an increase in the price of a hamburger
C) a fall in the price of french fries, a complement for hamburgers
D) an increase in the number of hamburger restaurants
Answer: C

4) A decrease in the expected future price of cars


A) increases the current quantity demanded of cars, that is, there is a movement downward
along the demand curve for cars.
B) increases the current demand for cars, that is, there is a rightward shift of the demand
curve for cars.
C) decreases the current quantity demanded of cars, that is, there is a movement upward
along the demand curve for cars.
D) decreases the current demand for cars, that is, there is a leftward shift of the demand curve
for cars.
Answer: D

5) Which of the following is NOT held constant while moving along a supply curve?
A) expected future prices
B) the number of sellers
C) the price of the good itself
D) prices of factors of production
Answer: C

6) If good A is a normal good and income increases, the equilibrium price of A ________
and the equilibrium quantity of A ________.
A) rises; increases
B) rises; decreases
C) falls; decreases
D) falls; increases
Answer: A

You might also like