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Questions and Answers
In a market economy, prices adjust to balance supply and demand, guiding economic decisions.
In a market economy, prices adjust to balance supply and demand, guiding economic decisions.
True (A)
Markets are rarely a good way to organize economic activity.
Markets are rarely a good way to organize economic activity.
False (B)
A fall in the price of apple juice will likely shift the demand curve for orange juice to the right.
A fall in the price of apple juice will likely shift the demand curve for orange juice to the right.
False (B)
If both supply and demand increase, the price will definitely rise, but the quantity change is uncertain.
If both supply and demand increase, the price will definitely rise, but the quantity change is uncertain.
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Study Notes
Market Economy
- Prices are the primary mechanism to balance supply and demand in a market economy
- Prices guide economic decisions by signaling scarcity and value
Market Efficiency
- Markets are generally efficient in organizing economic activity, not inefficient
Demand Curve Shifts
- A fall in the price of apple juice (a substitute good) will likely increase demand for orange juice, shifting the demand curve to the right
Supply and Demand Changes
- When both supply and demand increase, the impact on price is certain – it will rise
- The impact on quantity is uncertain, as the magnitude of the shifts in supply and demand will determine the outcome
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