Suppose That We Illustrate Demand and Supply with Quantity on the Horizontal

question 30

Multiple Choice

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Q^d (P, I) . Which of the following statements is true?

• A) A change in income will cause a shift in the supply curve.
• B) A change in income level is represented by a movement along the demand curve.
• C) Income is not represented on one of the axes, and so is treated as an exogenous variable in the graphical analysis.
• D) Price and income together must change in order to create a shift in the demand curve.

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Definitions:

Efficient Level

The optimal point of operation where resources are used in such a way that maximizes productivity and minimizes waste.

Negative Externality

A cost that is suffered by a third party due to an economic transaction, where the cost is not reflected in the transaction's final price.

Marginal Social Cost

The total cost society bears for the production of an additional unit of a good, including both direct costs to the producer and external costs to others.

Efficient Output

The level of production at which a company or economy can produce the maximum amount of goods at the lowest cost.