Explain the effect of the following changes on equilibrium price and quantity of a commodity:
(a)
increase in average incomes.
(b)
increase in population.
What will be an ideal response?
If average incomes rise, consumers will purchase more of most goods. That is, increases in income normally shift demand curves outward to the right. The equilibrium price and quantity both rise. These are goods characterized as “normal goods.”
A larger population will presumably want to consume more of a commodity, even if the price of that commodity and average incomes do not change, thus shifting the entire demand curve to the right. The equilibrium price and quantity both rise.
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One key assumption lying behind the policy irrelevance proposition is that
A) wages are "sticky" downward. B) prices are "sticky" upward. C) the rational expectations hypothesis is correct. D) markets are not purely competitive.
Other things remaining the same, if a large part of the population decided against having soda for health reasons, there would be a(n):
a. increase in the quantity of soda supplied. b. increase in the quantity supplied of complements like fries and burgers. c. decrease in the price of soda. d. rightward shift of the demand curve for soda. e. decrease in the quantity demanded of substitutes like mineral water.
The term for an innovative new product or production technology that disrupts the status quo in a market, leading the innovators to earn more income and profits and the other firms to lose income and profits, unless they can come up with their own innovations is called a(n)
a. innovative market change b. disruptive market change. c. productivity market change d. technological market change
An exchange rate that is set by official government policy is called a ________ exchange rate.
A. nominal B. flexible C. real D. fixed