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Unformatted text preview: 1 www.prep101.com/freestuff Use the following information to answer question 5: Price ($) of good A Quantity Demanded of good A Quantity supplied of good A 10 20 30 40 50 60 65 60 55 50 45 40 45 50 55 60 65 70 Q5. Assume there is a sudden pessimism among consumers and demand for good A decreases by 10 units at each price. At the same time, good A’s production costs rise and supply of good A decreases by 20 units at each price. What are the new equilibrium price and the new equilibrium quantity? a) b) c) d) e) $30; 45 $50; 55 $60; 50 $40; 40 $20; 50 Solution: d) $40; 40 After the shifts in the demand and supply curves, the new equilibrium occurs at the price of $40, where the quantity demanded= quantity supplied= 40 (see table below). Price ($) of good A Quantity Demanded of good A Quantity supplied of good A 10 20 30 40 50 60 55 50 45 40 35 30 Page 4 of 33 25 30 35 40 45 50 ©Prep101 www.prep101.com/freestuff Q6. If the price of good X increases and the quantity of good X sold decreases, a) The supply of good X must have decreased and the demand for good X could have increased, decreased or remained unchanged b) The supply of good X must have decreased and the demand for good X must have remained unchanged c) The supply of good X must have decreased and the demand for good X must have increased d) The supply of good X must have decreased and the demand for good X must have decreased e) The supply of good X must have increased and the demand for good X could have increase...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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