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For questions (1) through (5) write the number of each question and TRUE (if the statement...

For questions (1) through (5) write the number of each question and TRUE (if the statement is true) or FALSE (if the statement is false) by each number.

(1) If there is excess DEMAND, the price will FALL in a free market.

(2) A change in PRICE will SHIFT the consumer's demand curve.

(3) If price is BELOW the equilibrium price there will be excess DEMAND.

(4) The INCOME effect is NOT caused by a change in price.

(5) If there are many substitutes demand will be inelastic.

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Answer #1

(1) False as If there is excess DEMAND, the price will RISE in a free market.

(2) False as A change in PRICE will cause a movement along the consumer's demand curve and does not shift it

(3) True as If price is BELOW the equilibrium price there will be excess DEMAND (shortage where demand > supply)

(4) True as  The INCOME effect is NOT caused by a change in price, but rather a change in income

(5) False as If there are many substitutes demand will be elastic and not inelastic.

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