Chapter 3

Question 1

Price Quantity
Demanded
$10 100
$20 Q1
If the law of demand applies to this good, then Q1 could be

Answer 1

0

Question 2

If a decrease in income leads to an increase in the demand for frozen taquitos, then frozen taquitos are

Answer 2

an inferior good

Question 3

Refer to Figure: Clorox Wipes. An increase in the price of a substitute (Lysol wipes) would be represented by a movement from

Answer 3

demand shifting to the right

Question 4

Refer to Figure: Clorox Wipes. A decrease in the price of bleach (an input for clorox wipes) would be represented by a movement from

Answer 4

supply shifting to the left

Question 5

Studies have shown that drinking one glass of red wine per day may help prevent heart disease (hint: increases demand). Assume this is true, and a fungal disease destroys a large portion of the grape harvest of California vineyards (hint: decreases supply). In the market for red wine, these two developments would

Answer 5

increase demand and decrease supply, resulting in an increase in the equilibrium price and an ambiguous effect on the equilibrium quantity of red wine.

Question 6

Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for limo rides and that limo rides and champagne are complements. What panel describes what happens in this market when the price of champagne falls?

Answer 6

Demand shifts to the right

Question 7

Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for ramen noodles, an inferior good. Which panel describes what happens in this market as a result of an increase in income?

Answer 7

Demand shifts to the left

Question 8

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline

Answer 8

supply shifted left causing a raise in price

Question 9

Suppose that McDonald’s successfully implements self-serve kiosks in their restaurants, and this investment in technology allows the company to reduce the number of employees at each location. All else equal, this technological improvement would ________ the equilibrium price for its products and ________ the equilibrium quantity consumed.

Answer 9

decrease, increase

Question 10

The following equations represent the demand and supply for bird feeders.
QD = 35 - P
QS = -5 + 3P
What is the equilibrium price (P) and quantity (Q - in thousands) of bird feeders?

Answer 10

P=5, Q=30K

Question 11

If the quantity of tacos demanded is represented by the equation QD = 20 - 0.5P then the
corresponding price of tacos is represented by the equation

Answer 11

P = 40 - 2QD