Question

1. Suppose you can write generic supply and demand curves such that Q_S=A+BP  and Q_D=D+CP. In the usual supply-demand configuration, D must be

   Please explain the rationale behind your answer.

   	a.	0
   	b.	negative
   	c.	positive

Answer 1

It shall be noted that for the generic demand curve QD = D + CP, D should be positive.

It shall be noted that the demand curve is downward sloping. When P=Price per unit is zero, that means, the good is available to the consumers for free. The Price cannot be lower than zero. Also, a rational consumer would always demand a higher quantity of goods when it is available for free relative to a situation when the good is available with a price-tag.

Thus, since, the generic demand curve QD = D + CP is for a rational consumer and for a rational consumer, the QD is at its highest when the Price is zero, which means, D should be positive.

Hence, the correct answer is c. positive