CH 2.1 : Relationships between Markets

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What is the primary role of understanding relationships between markets?

To ignore the dynamics of factor markets
To determine the price of a single good
To analyze how changes in one market affect others (correct)
To predict the behavior of a single consumer

What do relative prices represent?

The total revenue of a firm
The cost of one good or service in terms of another (correct)
The absolute cost of a good or service
The quantity of a good or service demanded

What happens to demand when the price of a good increases, assuming it is not inelastic?

Demand increases
Demand remains the same
Demand decreases (correct)
Demand becomes inelastic

What is the effect of an increase in the price of a complement good?

Demand for the related good decreases (B) Signup and view all the answers

What is a key factor influencing demand?

Consumer preferences (C) Signup and view all the answers

What happens to supply when the price of a good increases?

Supply increases (C) Signup and view all the answers

What is the effect of an increase in the price of a substitute good?

Demand for the original good increases (D) Signup and view all the answers

Why are relative prices dynamic?

Because they are influenced by various economic factors (C) Signup and view all the answers

Which of the following is a consequence of a change in one market affecting others?

Influences on prices, supply, and demand across the economy (B) Signup and view all the answers

What is the primary factor that influences how resources are distributed in an economy?

Dynamic relative prices (D) Signup and view all the answers

What is the result of a decrease in the price of a good that is a substitute for another good?

An increase in demand for the other good (D) Signup and view all the answers

What is the impact of an increase in the price of a good on its supply, assuming it is not a Giffen good?

An increase in supply (A) Signup and view all the answers

Which of the following is a factor that influences consumer demand?

Price expectations (C) Signup and view all the answers

What is the effect of a decrease in the price of a good on its demand, assuming it is an elastic good?

An increase in demand (C) Signup and view all the answers

What is the result of an increase in the price of a good that is a complement to another good?

A decrease in demand for the other good (C) Signup and view all the answers

What is the relationship between the price of a good and its demand, assuming it is not a Giffen good?

Inverse relationship (C) Signup and view all the answers

In which market structure would a shift in relative prices have the most significant impact on resource allocation?

Perfect Competition (B) Signup and view all the answers

What is the likely outcome if there is an increase in the price of a substitute good, ceteris paribus?

A decrease in the demand for the original good (D) Signup and view all the answers

In which of the following scenarios would the law of supply not hold?

When the government imposes a quota on production (A) Signup and view all the answers

What would be the likely consequence if there is a decrease in the price of a complement good?

An increase in the demand for the original good (C) Signup and view all the answers

If the law of demand holds, what would be the likely outcome if there is an increase in consumer income, ceteris paribus?

An increase in the demand for normal goods (A) Signup and view all the answers

What would be the likely outcome if there is an increase in the price of a good, assuming it is a normal good?

A decrease in the demand for the good (A) Signup and view all the answers

What is the likely outcome if there is a change in the price of a good in one market, assuming all other markets are interconnected?

A change in the prices of other goods in other markets (B) Signup and view all the answers

What is the primary reason why relative prices are dynamic?

Because of changes in supply and demand (A) Signup and view all the answers

How do changes in one market affect others in an economy?

By altering the relative prices of goods and services (D) Signup and view all the answers

What is the primary factor that influences the supply of a good?

The price of the good itself (A) Signup and view all the answers

How do changes in the price of a good affect its demand, assuming the good is not a Giffen good?

The demand decreases if the price increases, but increases if the price decreases (B) Signup and view all the answers

What is the effect of an increase in the price of a good on its demand, if the good is inelastic?

The demand remains unaffected (D) Signup and view all the answers

What is the relationship between the price of a good and its demand, assuming the good is a normal good?

The demand decreases when the price increases (D) Signup and view all the answers

What is the primary consequence of a shift in relative prices in an economy?

A redistribution of resources in the economy (D) Signup and view all the answers

How do changes in the price of a complement good affect its demand?

The demand increases when the price of the complement good decreases (A) Signup and view all the answers

What is the primary role of relative prices in an economy?

To allocate resources in the economy (A) Signup and view all the answers