Unit 2 Microeconomics

What is the law of demand?

• There is a direct relationship between price and quantity demanded
• There is an inverse relationship between price and quantity demanded
• There is no relationship between price and quantity demanded
• There is an inverse relationship between income and quantity demanded

Goods A and B are substitutes. An increase in the price of A will cause the demand for B to _________

• Increase
• Decrease

Goods X and Y are complements. A decrease in the price of X will cause the demand for Y to _________

• Increase
• decrease

Good N is a normal good. A decrease in income will cause the demand for N to ____________

• increase
• decrease

Good R is an inferior good. A decrease in income will cause the demand for R to ___________

• increase
• decrease

What is the law of supply?

• There is a direct relationship between price and quantity supplied
• There is an inverse relationship between price and quantity supplied
• There is no relationship between price and quantity supplied
• There is an inverse relationship between income and quantity supplied

Identify the price elasticity of demand equation

• % change in QD / % change in Price
• % change in QS / % change in Price
• % change in quantity of good A/ % change in price of good B
• % change in quantity / % change in income

Coefficient for inelastic demand =

• 1
• Less than 1
• Greater than 1

Coefficient for unit elastic demand =

• 1
• Less than 1
• Greater than 1

Coefficient for elastic demand =

• 1
• Less than 1
• Greater than 1