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30) Which of the following would lead to a short-run market surplus for tomatoes?
A) The price of tomatoes increases.
B) A new government study shows that tomatoes have a greater risk of contamination from
salmonella.
C) An increase in the price of potatoes.
D) A decrease in the number of tomato growers.
31) Which of the following would cause a leftward shift in the demand curve for a good?
A) an increase in income
B) an increase in the price of a complementary good
C) an increase in the price of a substitute
D) the expectation that there will be a shortage in the availability of the good
32) Which of the following would cause a decrease in the price of a good?
A) an increasing shift in the supply of a good and no shift in demand
B) a decreasing shift in the supply of a good and no shift in demand
C) an increasing shift in the demand for good and no shift in supply
D) an increasing shift in the demand for good and a decreasing shift in supply
33) A market is in equilibrium when
A) supply is equal to demand.
B) the price is adjusting upward.
C) the quantity supplied is equal to the quantity demanded.
D) tastes and preference remain constant.
34) In the short run, a change in the equilibrium price will
A) always lead to inflation.
B) cause a shift in the demand curve.
C) cause a shift in the supply curve.
D) cause a change in the quantity demanded or supplied.
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35) Comparative statics analysis in economics is best illustrated as
A) the comparison of equilibrium points before and after changes in the market have occurred.
B) a comparison of two types of markets.
C) the comparison of the percentage of change in the one variable divided by the percentage
change in the other variable.
D) an analytical technique used to show best case scenarios of demand and supply curves.
36) An increase in input prices will cause
A) supply to shift rightward, equilibrium price to rise, and equilibrium quantity to fall.
B) supply to shift leftward, equilibrium price to rise, and equilibrium quantity to fall.
C) supply to shift rightward, equilibrium price to fall, and equilibrium quantity to rise.
D) supply to shift leftward, equilibrium price to fall , and equilibrium quantity to rise.
37) The switch to the use of ethanol in gasoline is driven primarily by its relatively lower price.
Assuming a competitive market, what effect would this change have on the equilibrium price and
output for gasoline?
A) Price rises, output falls.
B) Price falls, output rises.
C) Price rises, output rises.
D) Price falls, output falls.
38) Which of the following would indicate that price is temporarily above its market
equilibrium?
A) There are a number of producers who are left with unwanted inventories.
B) There are a number of customers who are looking for a good but cannot find sellers.
C) New firms decide to enter the market.
D) The government must step in and impose a tax on the good.
39) Which of the following statements is false?
A) An increase in demand causes equilibrium price and quantity to rise.
B) A decrease in demand causes equilibrium price and quantity to fall.
C) An increase in supply causes equilibrium price to fall and quantity to rise.
D) A decrease in supply causes equilibrium price to rise and quantity to rise.
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40) Holding supply constant, an increase in demand will
A) increase both the quantity and price.
B) increase the equilibrium price and decrease the equilibrium quantity.
C) decrease the equilibrium price and increase the equilibrium quantity.
D) decrease both the quantity and price.
Analytical Questions
1) Suppose that the demand for oranges increases. Explain the long-run effects of the guiding
function of price in this scenario.
2) Suppose that the demand for oranges increases. Carefully explain how the rationing function
of price will restore market equilibrium.
3) For each of the following changes, show the effect on the demand curve and state what will
happen to market equilibrium price and quantity in the short run.
a. Consumers expect that the price of the good will be higher in the future.
b. The price of a substitute good rises.
c. Consumer incomes fall, and the good is normal.
d. Consumer incomes fall, and the good is inferior.
e. A medical report is published showing that this good is hazardous to your health.
f. The price of the good rises.
4) For each of the following changes, show the effect on the supply curve and state what will
happen to market equilibrium price and quantity in the short run.
a. The government requires pollution control filters that raise costs on goods.
b. Wages of workers in this industry fall.
c. There is an improvement in technology.
d. The price of the good falls.
e. Producers expect that the price of the good will fall in the future.
5) For each of the following sets of supply and demand curves, calculate equilibrium price and
quantity.
a. QD = 2000 - 2P; QS = 2P
b. QD = 500 - P; QS = 50 + P
c. QD = 5000 - 10P; QS = -1000 + 5P
6) Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is advertising
expenditure.
a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium price and
quantity?
7) Industry supply and demand are given by QD = 1000 - 2P and QS = 3P.
a. What is the equilibrium price and quantity?
b. At a price of $100, will there be a shortage or a surplus, and how large will it be?
c. At a price of $300, will there be a shortage or a surplus, and how large will it be?
8) A good's Demand Curve is QD = 50 - 2P, and its Supply Curve is QS = 40 + P.
a. When P = $10, what is the difference, if any, between QD and QS?
b. When P = $2, what is the difference, if any, between QD and QS?
c. What are the equilibrium values of P and Q?
9) A good's Demand Curve is QD = 25 - P, and its Supply Curve is QS = 10 + 2P.
a. When P = $20, what is the difference, if any, between QD and QS?
b. When P = $3, what is the difference, if any, between QD and QS?
c. What are the equilibrium values of P and Q?
10) List the major non-price determinants of demand.
11) List the major non-price determinants of supply.
12) The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed
better in natural forms such as milk, and at the same time, the cost of milking equipment rises.
Carefully analyze the probable effects on the market.
13) Suppose that macroeconomic forecasters predict that the economy will be expanding in the
near future. How might managers use this information?
