Practice Ch 3 Questions

Question 1

What will happen to the equilibrium quantity and equilibrium price of potatoes if the income of potato consumers increases (assume that potatoes are an inferior good) and a new higher-yielding variety of potato plant is developed?

1. Equilibrium quantity may increase or decrease and equilibrium price will decrease.
2. Equilibrium price may increase or decrease and equilibrium quantity will increase.
3. Equilibrium quantity and equilibrium price will increase.
4. Equilibrium quantity and equilibrium price will decrease.

Answer 1

1
Explanation
Assuming that potatoes are an inferior good an increase in income will cause a leftward shift in the demand for potatoes while the development of the higher-yielding variety causes a rightward shift in the supply curve for potatoes. The equilibrium quantity may go either down or up but the equilibrium price of potatoes goes down.

Question 2

Suppose both the demand and supply of salsa increase (although not necessarily by the same amount). What can we conclude about changes in the price and quantity of salsa?

1. both the price and quantity increase
2. The price increases but the change in the quantity cannot be determined
3. The quantity increases but the change in the price cannot be determined
4. Both the price and quantity decrease

Answer 2

3
Explanation
An increase in demand causes equilibrium price and quantity to increase. An increase in supply causes equilibrium price to decrease and equilibrium quantity to increase. Therefore it is certain that quantity will increase, but the change in price is indeterminate.

Question 3

Suppose there are a series of forest fires which affect the lumber industry while, at the same time, consumers demand more wooden furniture. The wooden furniture market would experience:

1. An increase in price and an indeterminate change in quantity.
2. An increase in price and an increase in quantity.
3. An increase in quantity and an indeterminate change in price.
4. A decrease in price and an indeterminate change in quantity

Answer 3

1
Explanation
An increase in demand causes equilibrium price and quantity to increase. A decrease in supply causes equilibrium price to increase and equilibrium quantity to decrease. Therefore it is certain that price of wood will increase, but the change in quantity is indeterminate.

Question 4

A market is said to be in equilibrium when:

1. Demand is fully satisfied at all alternative prices.
2. The buying intentions of all consumers are realized.
3. The supply intentions of all sellers are realized.
4. The quantity demanded equals the quantity supplied.

Answer 4

4

Question 5

What happens to equilibrium price & quantity?

a. Demand increases; supply remains constant

b. Supply increases; demand remains constant.

c. Demand decreases; supply remains constant.

d. Supply decreases; demand remains constant.

e. Demand increases; supply increases.

f. Demand decreases; supply decreases.

g. Demand increases; supply decreases.

h. Demand decreases; supply increases.

Answer 5

a. The equilibrium price increases, and the equilibrium quantity increases.

b. The equilibrium price decreases, and the equilibrium quantity increases.

c. The equilibrium price decreases, and the equilibrium quantity decreases.

d. The equilibrium price increases, and the equilibrium quantity decreases.

e. The equilibrium price cannot be predicted, and the equilibrium quantity increases.

f. The equilibrium price cannot be predicted, and the equilibrium quantity decreases.

g. The equilibrium price increases, and the equilibrium quantity cannot be predicted.

h. The equilibrium price decreases, and the equilibrium quantity cannot be predicted.

The increase in demand will increase equilibrium price and quantity. The increase in supply will decrease equilibrium price and increase equilibrium quantity. Both changes lead to an increase in equilibrium quantity, so this can be predicted. The two changes have opposite impacts on equilibrium price, so this cannot be predicted.

Question 6

Supply curves are generally _______ sloping because _______________

1. downward; more consumers will buy the good if the price falls
2. upward; of the principle of increasing opportunity costs.
3. downward; it is less expensive to mass produce goods.
4. upward; of inflation.

Answer 6

2

Question 7

A change in demand means there has been a shift in the demand curve, and a change in quantity demanded:

1. Results from a change in price of other goods.
2. Means a shortage or surplus will result from holding prices constant.
3. Also means demand has shifted.
4. Means that price has changed and there is movement along the demand curve.

Answer 7

4

Question 8

Which of the following is most likely to cause an increase in the quantity demanded of perfume?

1. A decrease in the price of perfume
2. A decrease in tastes for perfume
3. An increase in income
4. An increase in the price of electricity

Answer 8

1

Question 9

When the price of a good is below its equilibrium value:

1. consumers will bid the price up.
2. excess supply will occur.
3. it will tend to stay below the equilibrium value.
4. suppliers will notice their inventories are growing.

Answer 9

1

Question 10

When the demand for coffee decreases, the equilibrium price will also decrease because:

1. A shortage exists at the old equilibrium price.
2. A surplus exists at the old equilibrium price.
3. The market supply and demand curves do not intersect.
4. Market demand must be upward sloping.

Answer 10

2

Question 11

If the demand for computers shifts to the right as consumers’ incomes rise, computers are

1. inferior goods.
2. complement goods.
3. normal goods.
4. substitute goods.

Answer 11

3

Question 12

If bagels and donuts are substitutes, then a decrease in the price of donuts will result in:

1. An increase in the demand for donuts.
2. A decrease in the demand for donuts.
3. An increase in the demand for bagels.
4. A decrease in the demand for bagels.

Answer 12

4

Question 13

Assuming that muffins and bagels are substitutes for most people.

Using the graph below, show the effects on price and quantity in both the bagel market and the muffin market, of the already pictured reduction in the supply of bagels from S1 to S2.

Answer 13

In the market for bagels there is a decrease in the quantity demanded , which is illustrated by a movement up along the demand curve .

In the market for muffins there is an increase in demand , which is illustrated by a rightward shift of the entire demand curve .

Question 14

If the price of a good increases, _____________________. The supply curve ______________. If price of the inputs needed to produce a good are higher then, _____________.The supply curve __________.

Answer 14

there will be an increase in quantity supplied
does not change
the supply of the good will decrease
shifts leftward

Question 15

An increase in the number of sellers of running shoes causes equilibrium price to:

1. Decrease and equilibrium quantity to increase.
2. Decrease and equilibrium quantity to decrease.
3. Increase and equilibrium quantity to increase.
4. Increase and equilibrium quantity to decrease.

Answer 15

1

Question 16

An increase in the supply of gasoline, will cause equilibrium price:

1. To rise and quantity to fall.
2. To fall and quantity to rise.
3. And quantity to rise.
4. And quantity to fall.

Answer 16

2

Question 17

How will a new law mandating an increase in required levels of automobile insurance affect the equilibrium price and quantity in the market for new automobiles (note that cars and car insurance are complement goods)?

1. Equilibrium price will fall; quantity will fall.
2. Equilibrium price will fall; quantity will rise.
3. Equilibrium price will rise; quantity will rise.
4. Equilibrium price will rise; quantity will fall.

Answer 17

1

Question 18

What will happen to the equilibrium price and quantity of beef if price of grain (used to feed cattle) decreases?

1. Both will decrease.
2. Equilibrium price will increase and equilibrium quantity will decrease.
3. Equilibrium price will decrease and equilibrium quantity will increase.
4. Both will increase

Answer 18

3