Question

1.) True or false. The demand for a good will fall if the price of a good that is a substitute increases.

2.) True or false. An increase in the supply of a good will cause the equilibrium price to increase.

Answer 1

Answer;

1. False

Substitute goods are those goods, increase in the price of one good increases the demand for its substitute and vice versa. The demand for a good will rise if the price of a good that is a substitute increases.

2. False

An increse in the supply of a good will cause the equilibrium price to decrease. This is shown in the following figure;

In the above figure, x-axis shows quantity and y-axis shows price. D is the demand curve and S is the supply curve. As the result of increase in supply, the supply curve shift to the right. The price falls from p to p1 .