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1. Select the correct response from the choices underlined.
When the price of a good changes, we say that this causes the demand / quantity demanded to change. This is shown by a shift in the demand curve / movement along the demand curve.
When one of the other determinants changes, however, we say that this causes the demand / quantity demanded to change. This is shown by a shift in the demand curve / movement along the demand curve.
2.
If the demand for a good exceeds supply, there will be a shortage / surplus. This will lead to a fall / rise in the price of the good. If the supply of the good exceeds the demand, there will be a shortage / surplus. This will lead to a fall
/ rise in the price. Price will settle at equilibrium. The equilibrium price is the one that clears the market.
3.
The diagrams below relate to demand and supply for two different goods X and Y. If for some reason the price is set below equilibrium price, describe the adjustment process that you will expect to take place. Which of the two situations portrays a stable equilibrium? Which one shows unstable equilibrium? [The first situation is stable equilibrium]
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