Exhibit 3-2 Price Di Quantity Good X Refer to Exhibit 3-2. Suppose equilibrium i

Question

Exhibit 3-2 Price Di Quantity Good X Refer to Exhibit 3-2. Suppose equilibrium is at point A. Something then changes and equilibrium becomes point C. Which of the following is consistent with the change in equilibrium from point A to C (assuming that good X is a normal good)? O There was a decrease in the number of buyers and business taxes increased. O There was an increase in the number of buyers and business taxes decreased. O There was an increase in the number of buyers and business taxes increased. O There was a decrease in the number of buyers and business taxes decreased.

Explanation / Answer

At A, Demand D1 and supply S1 meet at a single point determining an initial equilibrium. Now at C, Demand D2 and supply S2 meet at a new equilibrium. This implies that both the demand and the supply curve have shifted to the right. This is possible when buyers are more in number and taxes on businesses are reduced. Hence select the 2nd option.

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