What are the similarities and differences between the law of demand and the law of supply?
What will be an ideal response?
Both the law of demand and the law of supply deal with market forces and involve the influence of the price of goods and services on actors in the market. However, the law of demand deals with the demand of buyers, whereas the law of supply deals with the supply of goods and services provided by producers. Also, the type of influence price exerts is different for each. For the law of demand, an increased (decreased) price of a good or service causes the demand to decrease (increase). Price and demand, thus, are negatively related. For the law of supply, an increased (decreased) price of a good or service causes the supply to increase (decrease). Price and supply, thus, are positively related.
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The theory of purchasing power parity cannot fully explain exchange rate movements in the short run because
A) all goods are identical even if produced in different countries. B) monetary policy differs across countries. C) some goods are not traded between countries. D) fiscal policy differs across countries.
If the price elasticity coefficient equals 4.2, then demand is relatively inelastic with regard to price
a. True b. False Indicate whether the statement is true or false