Assume That Goods X and Y Are Substitutes and Are

question 20

Multiple Choice

Assume that goods X and Y are substitutes and are produced in perfectly competitive markets.All else constant,in the short run,a decrease in the supply of good X would cause:

• A)an increase in the demand for good Y.
• B)a decrease in the demand for good Y.
• C)an increase in the supply of good Y.
• D)a decrease in supply of good Y.

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Definitions:

Long-Run Aggregate Supply Curve

This curve shows the relationship between the overall price level and the total output produced in an economy when wages and resource prices fully adjust to changes, reflecting an economy’s maximum sustainable output level.

Potential Output

A measure of the highest level of economic output an economy can sustain over a period without increasing inflation; synonymous with potential GDP.

Negotiable

Referring to something that can be discussed or altered through negotiation, such as terms of a contract or a financial instrument.

Expansionary Gap

A situation where the total demand in an economy exceeds its potential output, leading to inflationary pressures.