Answer to Question #77073 in Macroeconomics for clara

Question

Determine whether each of the following four sentences uses the terminology of the supply and demand model correctly.
a. “The price of bicycles rose, and therefore the demand for bicycles went down.”
b. “The demand for bicycles increased, and therefore price went up.”
c. “The price of bicycles fell, decreasing the supply of bicycles.”
d. “The supply of bicycles increased, and therefore the price of bicycles fell.”

Answer 1

a) In the given sentence, the terminologies of the supply and demand model are used correctly, considering the law of demand.
b) In the given sentence, the terminologies of the supply and demand model are used correctly, considering a fixed supply and an increase in demand will cause an increase in the equilibrium price and supply quantity of a good.
c) In the given sentence, the terminologies of the supply and demand model are used correctly, considering the law of supply.
d) In the given sentence, the terminologies of the supply and demand model are used correctly, considering that an increase in supply will cause a reduction in the equilibrium price and an increase in the equilibrium quantity of a good.