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Exercise 2.

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An increase in the quantity of tea demanded
occurs whenever
A) the population of tea drinkers grows.
B) the price of coffee (its substitutes) rise.
C) tea drinkers receive an increase in their
incomes.
D) the price of lemons (its complement) falls.
E) the price of the tea falls.
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Answers to Exercise 2.1


The correct answer is (E).
The quantity of tea demanded will
change only when the price of tea
change.
From the law of demand, quantity of tea
demanded increases when price of tea
falls.

Exercise 2.2
Which of the following would result in a
decrease in the supply of computers?
A) An increase in the wage of workers in the
computer industry.
B) An improvement in the technology of
producing computers.
C) An increase in consumers preference in
internet surfing.
D) An increase in consumers' incomes.
E) An increase in the number of producer of
computers.
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Answers to Exercise 2.2


The correct answer is (A)
When firms need to pay a higher wage
to workers, they will employ less
workers, produce less output
The supply of the product will decrease.

Exercise 2.3
Which of the following will NOT cause a
shift in the demand curve for rice?
A) Consumers have a stronger preference
in consuming rice.
B) A decrease in the price of vegetables (a
complement to rice).
C) An increase in the price of rice.
D) A decrease in the price of noodle (a
substitute to rice).
E) An increase in consumers' incomes.
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Answers to Exercise 2.3


The correct answer is (D).
If there is no shift in the demand curve,
it implies that there will be a movement
along the demand curve.
The price of the product must have
either increase or decrease
Only non price factors can cause the
demand curve to shift.
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Exercise 2.4
What happens to the demand curve of
bread when:
(1) The consumers income increases?
(2) There is a decrease in the price of
biscuits, its main substitutes?
(3) The price of flour (the raw materials
in making bread) increases?

Answers to Exercise 2.4


(1) If bread is a normal good, the demand
curve shifts right. If it is an inferior good, the
demand curve shifts left.
(2) When price of biscuits (its substitutes)
decreases, consumers will switch to biscuits,
so the demand for bread decreases. The
demand curve shifts left.
(3) Price of flour changes will affect the supply
curve but not the demand curve

Exercise 2.5
What happen to the supply curve of car when:
(1) The workers in the car industry
successfully demanded a higher wage?
(2) Many producers leave the industry due to
poor prospects?
(3) There is an increase in the price of petrol?

Answers to Exercise 2.5


(1) With higher wage, cost of production increases.
The firms will employ less workers and produce
less cars. Supply decreases, supply curve shifts
left.
(2) When number of producers decrease, supply
decreases, supply curve shifts left.
(3) Car and petrol are complements in
consumption. When petrol price increases, lesser
consumers will buy car, demand decreases and
demand curve will shift. But supply curve of car is
not affected.

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Exercise 2.6
Evaluate whether the following statement is true or
false, justify your answer.
(i)
An increase in price results in increase in
supply but not an increase in the quantity
supplied.
(ii)
An improvement in technology will shift
the goods supply curve rightward.
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Answers to Exercise 2.6


(i) False. An increase in price results in
increase in the quantity supplied but not
an increase in supply.
(ii) True.

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