TRUE OR FALSE

1) When the price of a substitute rises, demand for the original good increases

2) When the price of a complement rises, demand for the original good increases. 

3) When income rises, demand for an inferior good increases.

4) When income rises, demand for a normal good decreases.

5) When tastes change in favor of a good, demand for the good decreases.

6) When tastes change against a good, demand for the good decreases. 

7) When the price is expected to fall in the future, demand for the good decreases today. 

8) When the price of a complement falls, demand for the original good increases. 

9) When the price of a good rises firms are willing to supply more of it.

10) A rise in the expected price of a good will increase supply, shifting the supply curve to the left.

11) Cost-saving technological advances increase the supply of a good, shifting the supply curve to the right.

12) The increased price of an input causes a decrease in supply causing a downward movement in the supply curve.

13) The rise in prices of baking supplies in producing loaf bread would cause a shift in the supply curve.

14) The price of onions increases sharply causing a shift in the supply curve of onions to the right.

15) The law of supply states that producers are willing to sell less of a good or service at a lower price.

 

Ans 1. True.

Substitute goods have similiiar uses and hence these goods can be used in place of each other. A rise in price of a substitute good will increase the demand of other good as consumers now shift to consume the cheaper alternative available. Examples include: tea and coffee, coke and pepsi, gel pen and ball pen.

Ans 2. False

Compliment goods are those goods which are consumed together. A rise in price of a compliment good will decrease the demand for other good. Examples include tea and sugar, pen and paper etc,

Ans 3. False

Inferior good are those good whose demand decreases when the income of the consumer increases. Inferior goods have a negative coefficient of income elasticity. For example, low quality of rice. Packaged and frozen food.

Ans 4. False.

When income rises, the demand for a normal good increses. Normal goods have a positive coefficient of income elasticity. Examples of such goods are eggs, milk etc.

Ans 5. False.

When tastes change in favour of a good, the demand for the good increases. Consumers now consume more of that good.

Ans 6. True.

When tastes change against a good, the demand for that good would decrease. People shift their consumption to other goods.

Ans 7. True.

When price is expected to fall in future, people will consume less of that good today. This is because they would want to purchase the same good at a lower price in future. Thus consumption of that good is postponed to a future date.

Ans 8. True.

When the price of a compliment good decreases, demand for the original good increases. Compliment goods are those goods which are consumed together. People can now afford more of both goods. For example, tea and sugar, pen and paper.

Ans 9. True.

According to the law of suply, supply of a good increases as its price increases. Seller's get a higher price for the good that they sell.

Ans 10. False.

A rise in the expected price of a good will increase supply, shifting the supply curve to the right.

Ans 11. True.

A cost saving technology, increases the supply of a good. Producers can now produce more of the good with the same cost outlay. As a result, supply will increase and supply curve shifts right.

Ans 12. True

When the Price of an input increases, production becomes costly, as a result supply reduces and supply curve shifts ledtwards.

Ans 13. True.

Baking supplies are an input for the production of loaf breads. Thus production of loaf bread becomes costly and supply curve shifts left.

Ans 14. False.

A rise in price of onion will cause an upward movement along the supply curve.

Ans 15. True.

Acccording to the law of supply, price and supply of a good have a linear relationship. When price rise, sellers are willing to supply more and when price fall, sellers are willing to supply less.