MODULE 2

Practice Assessment - Demand, Supply and Market Equilibrium (Part II)

1.
a) The effect of an increase in the price of good Y, a complement to good X represented
on the horizontal axis.

Answer: The result of the situation stated above presents the decrease in quantity
demanded of good X and a decrease price wherein the demand curve shifts to the left.

b) The effect of a decrease in the price of input used to produce good X represented on the
horizontal axis.

Answer: The above-mentioned event will result to an increase in supply of good X

wherein the supply curve shifts to the right.

c) The effect of an increase in personal income tax on good X represented on the horizontal
axis:
Assume good X to be an inferior good.

Answer: The event presented results to a decrease in income which causes the demand
to increase since good X is identified as an inferior good. Hence, a rightward movement
of the demand curve occurs.

2. Joanne’s analysis is correct because if peanut butter and jelly are considered as
complementary, the price for peanut butter will increase. Thus, when the price of jelly increases,
the demand for peanut butter is decreasing.

3. Willie’s statement is correct because the price of the product has no effect on demand since
the change in demand is affected by different determinants such as taste and preference,
income, expectations and number of consumers.