Answer to Question #234259 in Microeconomics for kenny

Question

1. Do you agree or disagree with the following statements? Briefly explain your answers and illustrate with Demand and Supply curves.

a) The price of a good rises causing demand for another good to fall. The two goods are therefore substitute goods.

b) A shift in supply causes the price of another good to fall. The shift must have been an increase in supply.

c) During 2019, the minimum wage increased sharply. This change would likely lead to an increase in the prices of both normal and inferior goods.

d) Two normal goods cannot be substitutes for each other.

e) If demand increases and supply increases at the same time, prices will clearly rise.

f) The price of good A falls. This causes an increase in the price of good B. Goods A and B are therefore complements.

Answer 1

a) I don't agree.

When the demand for a good falls because of the increase of price of another good, then these two goods are complements. Therefore, the two goods are not substitutes for one another.

b) I agree

When the supply of a good increases, the price of the good fall. This is because the increase in supply of a good, lowers the demand of the good and this could cause the price to fall.

c)

I would disagree and agree

This is because the decrease or the increase of prices on the inferior and normal goods depend on the demand of that item. Items whose prices can increase are the items like food products, which basic for everyone.

d) I disagree with this statement.

This is because if demand and supply are equal then the price should not change.

e)

I agree.

This is because when two goods are complements, then a decrease in price of one will lead to increase in the demand for the other product.