Use the Figure Below to Answer the Following Question(s)

question 145

Multiple Choice

Use the figure below to answer the following question(s) .
Figure 18-1
-Figure 18-1 illustrates supply and demand for U.S. dollars and British pounds in the foreign exchange market. If the dollar price of pounds is $1.20, which of the following is true?

• A)There is an excess supply of pounds, and the dollar price of pounds will rise.
• B)There is an excess demand for pounds, and the dollar price of pounds will rise.
• C)There is an excess supply of pounds, and the dollar price of pounds will fall.
• D)There is an excess demand for pounds, and the dollar price of pounds will fall.

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Definitions:

Incentive Function

The way in which economic rewards or penalties influence the actions of individuals and firms.

Competitive Markets

Markets where multiple firms are in rivalry to attract consumers, characterized by free entry and exit, leading to efficient outcomes.

Price Increases

An upward adjustment in the cost of goods or services, typically reflecting higher production costs or increased demand.

Economic Rents

Earnings that exceed the minimum amount necessary to keep a factor of production in its current use.