Chapter 3 hw1

# Principles of Macroeconomics: A Study Guide

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Chapter 3: Demand, Supply, and Market Equilibrium Multiple Choice 1. Refer to the graph below. Which arrow represents supply in input markets in this simple circular flow of the economy? A B C D

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2. The law of demand states that: When demand for a good increases, beyond some point, the price will necessarily begin to increase. Goods that are more scarce tend to be more expensive. When a good or service is less available, people don't consume as much of it; therefore, the price will fall. There is a negative (or inverse) relationship between the price and the quantity demanded of a good or service. 3. Refer to the graph below. Which move illustrates the impact of a decrease in market price on market demand, all else the same? The move from A to B. The move from A to C. Both moves show the same result on demand.
None of the above. 4. A decrease in the preference of consumers for a good or service will result in lower demand for that good or service. This means that: There is a positive relationship between preferences and demand for the good. There is a negative relationship between preferences and demand for the good. There is no relationship between preferences and demand for a good or service. A negative relationship between preferences and demand exists, but the relationship could be positive some of the time. 5. Refer to the graph below. Assume that TVs and VCRs are two complement goods and that the diagram below represents the demand for VCRs. Which move would best describe the impact of a decrease in the price of TVs on this diagram? The move from A to B.

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The move from A to C. Both moves. Demand first moves from A to B, then from B to C. None of the above. Since this is the demand for VCRs, changes in the price of other goods would have no impact on it.
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