a) Choose the correct answer.

i. Wants, as opposed to demands,

A) depend on the price.

B) are the goods the consumer plans to acquire.

C) are the unlimited desires of the consumer

D) are the goods the consumer has acquired.

ii. Market equilibrium refers to a situation in which market price

A) is high enough to allow firms to earn a fair profit.

B) is low enough for consumers to buy all that they want.

C) is at a level where there is neither a shortage nor a surplus.

D) is just above the intersection of the market supply and demand curves.

iii. If the price of a good increases while the quantity of the good exchanged on

markets increases, then the most likely explanation is that there has been

A) an increase in demand.

B) a decrease in demand.

C) an increase in supply.

D) a decrease in supply.

iv. To be an importer of a product the country must have its domestic price of the

product be _____ the foreign price.

A) higher than

B) lower than

C) equal to

v. A drop in the price of a compact disc shifts the demand curve for prerecorded

tapes leftward. From that you know compact discs and prerecorded tapes are

A) normal goods.

B) substitutes.

C) inferior goods.

D) complements.

vi. A rise in the price of a good causes producers to supply more of the good. This

statement illustrates

A) the nature of an inferior good.

B) the law of demand.

C) the law of supply.

D) a change in supply

vii. If there is surplus of a good, then the quantity demanded ________ the

quantity supplied and the price will ________.

A) is less than; rise

B) is less than; fall

C) is greater than; fall

D) is greater than; rise

b) Define market equilibrium. Let, Qd = 12 - 2P, Qs = 2P, then calculate the market

equilibrium price and quantity and show the results graphically.