Multiple Choice Tutorial
Chapter 4
Demand, Supply and
Markets
1
1. At a given time and in a given marketplace, the
entire market demand curve indicates the
a. quantity of a good consumers would be
willing and able to purchase at a given price.
b. quantity of a good consumers would be able
to purchase at a series of prices.
c. quantity of a good consumers want to
purchase at a given price
d. quantity of a good consumers have
purchased at a series of prices over the year.
B. Demand curves measure the relationship
between a series of prices and quantities
demanded, not just one price and quantity.
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2. Assume Samantha likes hot dogs and
hamburgers equally, and the price of
hamburgers (a normal good) declines. She will
most likely purchase more hamburgers; this is
a. a reflection of the income effect
b. a reflection the substitution effect
c. a reflection of the income and substitution
effects
B. The substitution effect is when the price of a
good falls, consumers will substitute it for
other goods, which are now relatively more
expensive. The income effect is when the fall
in the price of a good increases consumer’s
real income, making them more able to
purchase all goods.
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3. If the price of a good declines from $5.00 per
unit to $4.00 per unit, and you continue to
purchase 5 units of this good, as you had in the
past, your real income has
a. decreased by $5.00
b. increased by $4.00
c. decreased by $4.00
d. increased by $5.00
D. Real income is income measured in terms of
the goods and services it can buy. In this case,
a fall in the price of $1.00 and you buy 5
units, your buying power increased by $5.00.
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4. When the price of a normal good declines,
you have
a. an income effect but no substitution effect
b. a substitution effect but no income effect
c. no income effect or substitution effect
d. an income effect and a substitution effect
D. A normal good is one that consumers will
buy more of as their income increases. The
income effect recognizes that consumers will
buy more of a good when their incomes
increase, the substitution effect recognizes
that consumers will or will not buy an
alternative product based on the relative
price difference.
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5. A typical demand curve will normally have a
a. positive slope
b. horizontal slope
c. vertical slope
d. negative slope
D. A negative slope is a downward slope from
left to right. With price on the vertical axis
and quantity on the horizontal axis, price and
quantity will always move in the opposite
direction.
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6. The negative slope of a demand curve implies
that as the price
a. declines, quantity demanded increases
b. declines, quantity demanded decreases
c. increases, quantity demanded increases
d.increases, the demand curve becomes
steeper
A. As price changes the demand itself does not
change because the curve itself remains fixed.
What changes is the quantity demanded
which is measured on the horizontal axis.
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7. In moving along a given demand curve,
quantity changes in response to a change in
a. consumer taste
b. consumer incomes
c. consumer expectations
d.the price of the good
D. There is a difference between the terms a
“change in demand” and a “change in the
quantity demanded.” A change in demand
means the whole curve changes. A change in
the quantity demanded means that there is a
movement along a stationary demand curve.
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8. Which of the following would not be
considered a normal good?
a. steaks
b. flour
c.. oranges
d. meals at restaurants
B. Flour is a product that people will not
necessarily buy more of just because
their income increases.
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9. Which of the following would not be
considered compliments?
a. shoes and socks
b. tennis racquet and tennis balls
c. Coke and Pepsi
d. automobiles and gasoline
C. Compliments are goods that are used
together, like bread and butter. Coke and
Pepsi are substitutes for one another.
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10. Which of the following would not be
considered substitutes?
a. butter and margarine
b. Coke and Pepsi
c. Fords and Chevrolets
d. hamburgers and french fries
D. Although hamburgers and french fries can
be considered substitutes because they are
both food, of the choices given above, the
other choices are more substitutes than are
hamburgers and french fries.
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11. The price of Ford automobiles increases and
the price of Chevrolets remains constant, the
demand for Chevrolets will
a. increase
b. decrease
c. decrease then increase
d. increase then decrease
A. A factor that will cause a shift in demand is
when the price of a substitute good changes.
As the price of Ford cars increases,
consumers will demand more Chevrolets
because of the relative price difference.
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12. As the wage (price) of computer
programmers increases, more college
students are willing to major in computers.
This is known as the law of
a. demand
b. variable proportions
c. supply
C. As a college student you are interested in
majoring in subjects that will make you
marketable when it comes time to look for a
job. As wage of computer programmers goes
up, more college students will choose to
major in computers. As the wage of social
workers goes down, fewer students will
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choose to major in social work.
13. In the case of a normal good, an increase in
consumers’ incomes would shift the
a. demand curve inward
b. supply curve inward
c. supply curve outward
d. demand curve outward
D. A normal good is a good that consumers
will buy more of as their income increases.
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14. An improvement in technology would shift
a. the demand curve inward
b. the demand curve outward
c. the supply curve inward
d. the supply curve outward
D. For example, as technological improvements
are applied to manufacturing computers,
suppliers of computers are able to supply
more computers at every price level.
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Exhibit 3-1
Price
S
D'
D
0
17
18
Quantity
19
20
21
22
23
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15. Refer to Exhibit 3-1. A shift from demand
curve D to D` would illustrate a(n)
a. decrease in demand
b. decrease in quantity demanded
c. increase in quantity demanded
d. increase in demand
D. This represents an increase in demand.
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16. Refer to Exhibit 3-1. Which of the following
would cause a shift from D to D`?
a. an increase in the number of consumers
b. an increase in the price of a complementary
good
c. a decline in consumers’ incomes
d. a decline in consumer optimism
A. The number of consumers in the market
will result in an increase in the demand for
a good or service. Likewise, a decrease in
the number of consumers in the market
will lead to a decrease in the number of a
good or service.
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17. Refer to Exhibit 3-1. Which of the following
would cause a shift in demand from D` to D?
a. an increase in the price of a substitute good
b. an increase in the number of consumers
c. a decrease in the price of a complementary
good
d. a decline in consumers’ incomes if it is a
normal good
D. If it is a normal good consumer’s will buy
fewer units as their income decreases. A shift
to the left of the demand curve represents a
decrease in demand.
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18. In Exhibit 3-1, a shift from D to D`, given the
supply curve, would result in
a. a decrease in quantity supplied
b. an increase in supply
c. a decrease in supply
d. an increase in quantity supplied
D. A shift to the right of a demand curve along
an upward sloping supply curve (all supply
curves are upward sloping) will cause the
equilibrium price to increase and the
equilibrium quantity to increase.
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19. In Exhibit 3-1, which of the following could
not cause the shift from D to D`?
a. a decrease in the price of a complement
b. an increase in the price of a substitute
c. a decrease in the price of the good in
question
d. an increase in the number of consumers
C. A change in the price of a good does not
change the demand curve, it changes the
quantity demanded as measured on the
horizontal axis. When price changes, there is
a movement along the curve, but the curve
itself does not change.
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20. Which of the following would correctly
explain the slopes of S and D in Exhibit 3-1?
a. improved technology increased demand
b. an increase in income caused an increase in
the demand and ultimately the supply of this
normal good
c. a decrease in income caused the demand to
increase for this inferior good and the higher
price caused an increase in quantity supplied
C. Consumers will buy more of an inferior
good as their income decreases because they
will buy less of the normal good. An increase
in price will give the suppliers an incentive to
increase the quantity supplied and vice versa.
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21. If S and D are the original supply and
demand curves, which of the following could
not cause the change indicated in Exhibit 3-1?
a. a decrease in income and the good is
inferior
b. a decrease in the price of a complement
c. an increase in the number of consumers
d. a decrease in the cost of producing the good
D. In the above choices, a, b, and c will effect
the demand curve. Only choice d will effect
the supply curve.
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Exhibit 3-2
S
Price
S’
D
0
25
Quantity
26
27
28
29
24
22. Refer to Exhibit 3-2. A shift from S to S`
would illustrate
a. a decrease in supply
b. a decrease in quantity supplied
c. an increase in quantity supplied
d. an increase in supply
D. A movement to the right of a curve
represents an increase.
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23. Refer to Exhibit 3-2. Which of the following
would not cause the shift from S to S`?
a. an increase in the price of resources
b. an improvement in technology
c. a decline in taxes
d. an increase in the number of producers
A. An increase in the price of resources
would shift the supply curve to the left, not
to the right. The increase in costs would
lesson the ability of the supplier to supply
at each price level.
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24. Refer to Exhibit 3-2. Which of the following
would not cause the shift from S` to S?
a. an improvement in technology
b. a decline in the number of producers
c. an increase in taxes
d. an increase in the price of resources
A. An improvement in technology would shift
the supply curve to right. An improvement in
technology would increase the the ability to
supply more units at each price level.
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25. Refer to Exhibit 3-2. A shift inward from
supply curve S` to S, given the demand curve,
would result in a(n)
a. increase in demand
b. increase in quantity demanded
c. decrease in demand
d. decrease in quantity demanded
D. A shift in the supply curve will occur
along the demand curve. So as the supply
curve shifts to the left along the demand
curve, there will be fewer units demanded
at each price level.
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26. Assume S and D are the original supply and
demand curves. Which of the following would
correctly explain the change illustrated in
Exhibit 3-2?
a. an increase in income for a normal good
b. consumers form more favorable
expectations
c. a decrease in the wage rate for specialized
labor
C. Because wages are a cost to a business, as the
wage rate decline, cost declines. Any decline in
costs will enable the supplier to supply more
units of the good at each price level; thus the
supply curve shifts to the right.
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Price
Exhibit 3-3
A
$3
$2
$1
S
B
D
C
D
Quantity
31
32
33
34
35
36
37
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27. Refer to Exhibit 3-3. At a price of $1.00,
a. the market generates a shortage
b. the market generates a surplus
c. the market generates equilibrium
d. the supply will shift outward
A. A shortage occurs because the quantity
demanded is less than the quantity supplied.
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28. Refer to Exhibit 3-3. At a price of $2.00,
a. the market generates a shortage
b. the market generates a surplus
c. the market generates equilibrium
d. quantity supplied exceeds quantity
demanded
C. A price that is an equilibrium is the price
toward which the economy tends. In this
case, if the price is above $2, the resultant
surplus will cause the price to decline; if the
price is below $2, the resultant shortage will
cause the price to increase.
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29. Refer to Exhibit 3-3. At a price of $3.00,
a. the demand curve will shift outward
b. the market generates a surplus
c. the market generates a shortage
d. the supply curve will shift inward
B. At a price of $3, the quantity demanded is
less than the quantity supplied which results
in a surplus.
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30. Refer to Exhibit 3-3. A shortage would be
properly indicated by the distance
a. A-B
b. A-D
c. C-D
d. B-C
C. C represents the quantity demanded at $1,
and D represents the quantity supplied at $1.
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31. Refer to Exhibit 3-3. If the price is $3, then
we would expect to find a
a. surplus of A-D
b. surplus of A-B
c. shortage of A-B
d. shortage of B-C
B. The distance between A and B represents
a surplus because the number of units
supplied is greater than the number of
units demanded.
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32. Which of the following is most accurate if a
ceiling price of $1 is imposed on the market
illustrated in Exhibit 3-3?
a. both C and D could occur simultaneously
b. either C or D would occur, but not both
c. a shortage will exist; however, eventually
supply will shift out to alleviate the shortage
d. a chronic shortage will persist unless
something else changes
D. In a free market the price would increase
upward toward $2, but with a price ceiling
this is not allowed to happen. Therefore,
there will persist a shortage of the distance
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between C and D.
33. Which of the following is most accurate with
respect to Exhibit 3-3?
a. a surplus will occur if the price is $1
b. equilibrium will occur at a price of $2
c. a shortage will occur if the price is $3
B. Any price above or below $2 will result in
either a surplus or a shortage, therefore,
price will tend back toward $2.
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34. Which of the following is correct?
a. gasoline prices increased causing shortages
b. a decline in the price of bread created a
surplus
c. the high price of diamonds reflect scarcity
d. rent for apartments around campus has
increased so much that the demand has
decreased(i.e.,shifted backward)
C. When there is not enough of a good for
everyone to have all they want at a zero price
(it is scarce), it will have a price to determine
who gets and who does not get. The more
scarce something is, the higher the price to
solve the allocation problem.
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35. A shift outward in supply curve will result in
equilibrium price
a. increasing and quantity increasing
b. increasing and quantity decreasing
c. decreasing and quantity increasing
d. decreasing and quantity decreasing
C. This is simple geometry. Draw a downward
sloping demand curve and an upward sloping
supply curve. When you move the supply
curve to the right it is obvious that the
market price will decline and the market
quantity will increase.
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36. A reduction in the number of producers will
result in equilibrium price
a. increasing and quantity increasing
b. increasing and quantity decreasing
c. decreasing and quantity increasing
d. decreasing and quantity decreasing
B. Producers are suppliers. When the supply
curve shifts to the left, market price increases
and the quantity supplied decreases.
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37. A shift inward in demand curve will result
in equilibrium price
a. increasing and quantity decreasing
b. increasing and quantity increasing
c. decreasing and quantity decreasing
d.decreasing and quantity increasing
C. A shift inward means that the demand curve
is decreasing, or shifting to the left. If you
draw this out on a piece of paper, it is made
obvious that the market price will decrease
and the market quantity will decrease.
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38. As a certain type of clothing becomes
more fashionable, we would expect its
equilibrium price
a. to decrease and quantity will remain
constant
b. and quantity will decrease
c. to increase and quantity to decrease
d. and quantity to increase
D. This is because there will be an outward
shift of the demand curve.
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39. If supply and demand both shift outward but
supply shifts outward more than demand, the
equilibrium price
a. will increase and quantity will decrease
b. will increase and quantity will increase
c. will decrease and quantity will decrease
d. will decrease and quantity will increase
D. This is the same thing as saying that supply
shifts to the right. It is shifting to the right
relative to demand. If you draw this out on a
piece of paper, it is obvious that the
equilibrium price will decrease and the
equilibrium quantity will increase.
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40. If supply and demand both shift outward,
but demand shifts outward more than supply,
the equilibrium price
a. will increase and quantity will increase
b. will increase and quantity will decrease
c. will decrease and quantity will decrease
d. will decrease and quantity will increase
A. This is the same thing as saying that demand
shifts to the right relative to supply. If you
draw this out on a piece of paper, it is obvious
that both price and quantity increases.
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41. At Christmas time often a certain toy or doll
becomes increasingly popular; this is
primarily due to a(n)
a. surplus
b. increase in demand
c. increase in supply
d. decrease in supply
B. An increase in demand means that
consumers will demand more units at
every price level.
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42. Which of the following is correct for a price
floor set above the equilibrium price?
a. quantity supplied is less than quantity
demanded at the set price.
b. at the set price there will be a shortage
c. quantity supplied exceeds quantity
demanded at the set price
C. A price floor exists when some authority
mandates that the price will not fall below a
certain level. The minimum wage law is an
example of this. If the market price is below
this mandated price level, there will be more
units supplied than there are units demanded.
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43. Which of the following is correct for the
price ceiling which is set below the market’s
equilibrium price?
a. quantity demanded exceeds quantity
supplied at the set price
b. quantity demanded is less than quantity
supplied at the set price
c. at the set price there is a surplus
A. A price ceiling occurs when an authority
mandates that the price cannot go above
a certain level. When this happens, the
quantity demanded is greater than the
quantity supplied, causing a shortage. 47
44. The Environmental Protection Agency
recently increased clean air requirements for
business firms. In the marketplaces for goods
produced by firms which now have higher
costs, we would expect to find
a. price increases and quantity increases
b. price increases and quantity decreases
c. price decreases and quantity increases
d. price decreases and quantity decreases
B. As the supply curve shifts to the left there
will be an increase in the equilibrium price
and a decrease in the equilibrium quantity as
the supply curve moves along a stationary
demand curve.
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45. In order to park on campus, one must
purchase an expensive parking permit; yet
there still is difficulty finding a parking spot.
This indicates
a. parking permits are priced to high
b. parking permits are priced to low
c. we need more parking spots
d. the first year students should not be
allowed to have cars on our campus
B. The price of the parking tickets did not deter
enough people from wanting to park on
campus.
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46. Let’s say the government enacted emergency
legislation which established a price ceiling for
gasoline below the current market price,
a. the price would decline and the quantity
sold would increase
b. the price would decline and the quantity
sold would decrease
c. with the new lower price a surplus would
occur
B. The price would decline by government
edict, but the quantity sold would decrease as
the supplier would have less incentive to
supply at the lower price.
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47. An increase in farm subsidies for corn would
a. shift the supply curve for corn inward
b. shift the demand curve for corn outward
c. shift the demand curve for corn inward
d. shift the supply curve for corn outward
D. A subsidy is a payment to the supplier to
supply more units of a good than otherwise
would be the case. Therefore, there would be
an increase in the supply curve and more
units would be supplied at every price level.
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48. An increase in the tax on gasoline would
a. shift the supply curve outward
b. shift the supply curve inward
c. shift the demand curve outward
d. shift the demand curve inward
B. An added tax to gasoline leads to an increase
in the price of everything that is transported.
Suppliers would thus be less able to supply at
every possible price level as their costs
increase.
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49. Which of the following would be
considered complements?
a. Nike and Reebok shoes
b. Wendy’s and McDonald’s hamburgers
c. Chevrolet and Mercury automobiles
d. peanut butter and jelly
D. Two goods are complements if they are used
together. Peanut butter and jelly tend to go
together on a sandwich.
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50. Which of the following would be
considered substitutes?
a. Coke and Pepsi
b. wedding dress and bridesmaid dress
c. golf balls and golf tees
d. bacon and eggs
A. Substitutes are goods that can be used in
place of each other. A Coke can be used in
place of a Pepsi and vice versa.
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51. A decline in consumer confidence or
expectations would shift the
a. demand curve inward
b. demand curve outward
c. supply curve inward
d. supply curve outward
A. The causes of a shift in demand are: a
change in expectations, a change income, a
change in the price of a related good or
service, and the number of consumers in the
market. For example, if consumers expect
interest rates to decline, they will borrow less
money now in anticipation of borrowing
more money in the future to take advantage
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of the lower interest rates.
52. As the baby boom ends, fewer families will
have younger children and, as a
consequence, the
a. demand curve for preschool services will
shift outward
b. demand curve for preschool services will
shift inward
c. supply curve for preschool services will
shift outward
d. supply curve for preschool services will
shift inward
B. This is a case where there will be fewer
consumers in the market.
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53. As the price of milk increases, producers are
normally willing to supply greater quantities.
This response is known as the law of
a. supply
b. demand
c. averages
d. variable proportions
A. The law of supply recognizes the fact the
suppliers will have an incentive to increase
the quantity supplied as the price increases
and decrease the quantity supplied as the
price decreases.
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54. The development of the silicon chip
lowered the cost of computers and caused an
increase in the
a. quantity demanded for computers
b. demand for computers
c. quantity supplied of computers
d. supply of computers
D. The supply of computers increased as the
cost of manufacturing the computer declined.
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55. The market price for wheat rises rapidly, and
farmers switch from growing soybeans to
growing wheat. How will prices and quantities
change in the wheat market?
a. equilibrium price will increase and
equilibrium quantity will increase
b. equilibrium price will increase and
equilibrium quantity will decrease
c. equilibrium price will decrease and
equilibrium quantity will increase
C. The equilibrium price will decrease because
the supply curve of wheat will shift to the
right; the equilibrium quantity will increase
for the same reason.
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56. Which of the following would not reduce the
transaction cost in a market?
a. a real estate agent, when buying a house
b. a stock broker, when purchasing stock
c. a full page newspaper ad to sell your used
lawn mower
d. a farmer’s market for fresh produce
C. Transaction costs are the costs of time
and information required to carry out
market exchange.
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57. What will happen to the equilibrium price and
quantity of peanut butter if peanuts increase in
price and the price of jelly decreases?
a. the equilibrium price and quantity increase
b. the equilibrium price will fall and the
equilibrium quantity will be indeterminate
c. the equilibrium price will rise and the
equilibrium quantity will be indeterminate
C. As the price of peanuts increase the supply
curve for peanut butter will decrease, thus
raising the equilibrium price. As the price of jelly
decreases, the demand curve will increase. These
two occurrences lead to an increase in price but
they will cancel one another out in terms of the
equilibrium quantity of peanut butter.
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END
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