1.If a price increase of good 1 increases the quantity demanded of good 2, then good 2 is a

a)Substitute good.

b)Complementary good.*

c)Bargain.

d)Inferior good.

2.What are competitive markets and why are they so important in economics?

a)Competitive markets are markets with many buyers and sellers who trade a homogeneous good. Although these markets do not exist in reality, they could appear in some places in the future and we have to be prepared for this circumstance.

b)Competitive markets are markets with many buyers and sellers who trade a homogeneous good. These markets are important because they are the only kind of market that we observe in reality.

c)Competitive markets are markets with many buyers and sellers who trade a homogeneous good. These markets are important because they are easy to analyze and because they represent a good approximation of many markets that we observe in reality.

d)Competitive markets are markets with many buyers and few sellers who trade slightly different products. These markets are important because they are easy to analyze and because they represent a good approximation of many markets that we observe in reality.

3.Suppose that in the world demand for Coca Cola in 2000 is given by the equation:P=32Q, wherePis the price andQthe quantity. If it is discovered in 2015 that Coca Cola is bad for your health and this is the only change affecting the demand, which is a plausible demand for Coca Cola in 2015?

a)P=52Q.

b)P=12Q.