Figure 3-5
92)
Refer to Figure 3–5. Assume that the graphs in this figure represent the demand and supply curves
for potatoes and that steak and potatoes are complements. What panel describes what happens in
this market when the price of steak rises?
92)
A)
Panel (a)
B)
Panel (b)
C)
Panel (c)
D)
Panel (d)
93)
If a firm expects that the price of its product will be lower in the future than it is today
93)
A)
the firm has an incentive to decrease supply now and increase supply in the future.
B)
the firm will not change supply until it knows for certain what will happen to its price.
C)
the firm has an incentive to increase quantity supplied now and decrease quantity supplied in
the future.
D)
the firm has an incentive to increase supply now and decrease supply in the future.
94)
Which of the following statements is true?
94)
A)
If demand decreases and supply increases one cannot determine if equilibrium price will
increase or decrease without knowing which change is greater.
B)
If both demand and supply increase there must be an increase in equilibrium price;
equilibrium quantity may either increase or decrease.
C)
A decrease in supply causes equilibrium price to rise; the increase in price then results in a
decrease in demand.
D)
An increase in demand causes a change in equilibrium price; the change in price does not
cause a further change in demand or supply.
95)
If in the market for apples the supply has decreased then
95)
A)
there has been a movement downwards along the supply curve for apples.
B)
the supply curve for apples has shifted to the right.
C)
the supply curve for apples has shifted to the left.
D)
there has been a movement upwards along the supply curve for apples.
Figure 3-5
96)
Refer to Figure 3–5. Assume that the graphs in this figure represent the demand and supply curves
for bicycle helmets. Which panel best describes what happens in this market if there is a substantial
increase in the price of bicycles?
96)
A)
Panel (a)
B)
Panel (b)
C)
Panel (c)
D)
Panel (d)
97)
In 2007, Apple Inc. began selling iPhones, a combination cell phone and digital music player.
Apple also sells iPods, a digital music player. If consumers consider iPhones and iPods substitutes,
how will sales of iPhones affect the market for iPods?
97)
A)
The demand for iPods will shift to the right, decreasing the equilibrium price and increasing
the equilibrium quantity.
B)
The demand for iPods will decrease, decreasing both the equilibrium price and quantity of
iPods.
C)
There will be no effect on the market for iPods because few consumers who buy iPhones will
also buy iPods.
D)
The supply of iPods will increase, decreasing the equilibrium price and increasing the
equilibrium quantity.
Figure 3–3
98)
Refer to Figure 3–3. At a price of $15, the quantity sold
98)
A)
is 6 units.
B)
is 4 units.
C)
is 2 units.
D)
cannot be determined.
99)
In a free market a shortage is eliminated by
99)
A)
a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
B)
a price increase, increasing the quantity supplied and decreasing the quantity demanded.
C)
a price increase, increasing the supply and decreasing the demand.
D)
a price decrease, decreasing the supply and increasing the demand.
100)
The phrase “demand has increased” means that
100)
A)
there has been a downward movement along a demand curve.
B)
a demand curve has shifted to the right.
C)
a demand curve has shifted to the left.
D)
there has been an upward movement along a demand curve.
101)
Assume there is a shortage in the market for digital music players. Which of the following
statements correctly describes this situation?
101)
A)
Some consumers will be unable to obtain digital music players at the market price and will
have an incentive to offer to buy the product at a higher price.
B)
The price of digital music players will rise in response to the shortage; as the price rises the
quantity demanded will increase and the quantity supplied will decrease.
C)
The demand for digital music players is greater than the supply of digital music players.
D)
The shortage will cause an increase in the equilibrium price of digital music players.
102)
Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept
through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were
not able to maintain normal deliveries. At the pre–hurricane equilibrium price (i.e., at the initial
equilibrium price), we would expect to see
102)
A)
the quantity demanded equal to the quantity supplied.
B)
an increase in the demand for gasoline.
C)
a shortage of gasoline.
D)
a surplus of gasoline.
C
103)
If, in response to an increase in the price of chocolate, the quantity demanded of chocolate
decreases economists would describe this as
103)
A)
a decrease in consumers‘ taste for chocolate.
B)
a decrease in quantity demanded.
C)
a change in consumer income.
D)
a decrease in demand.
B
A
104)
In 2002 Apple decided not to develop and sell a “tablet PC” – a laptop with a special screen that can
convert handwriting into text. According to one Apple executive, the tablet PC project was not
consistent with Apple’s theory for success. What is this theory?
104)
A)
Apple only sells items that it can build a successful advertising campaign around.
B)
Apple markets products that it can sell for high prices. The tablet PC would have sold for a
low price.
C)
Apple markets only products that it has patented. This prevents other companies from
competing with Apple.
D)
Apple believes its success will come from selling many inexpensive items rather than
relatively few expensive items.
105)
If a firm expects that the price of its product to be higher in the future than it is today
105)
A)
the firm will go out of business.
B)
the firm has an incentive to increase supply now and decrease supply in the future.
C)
the firm has an incentive to decrease supply now and increase supply in the future.
D)
the firm has an incentive to decrease quantity supplied now and increase quantity supplied in
the future.
106)
Which of the following would cause both the equilibrium price and equilibrium quantity of barley
(assume that barley is an inferior good) to increase?
106)
A)
a drought that sharply reduces barley output
B)
an increase in consumer income
C)
unusually good weather that results in a bumper crop of barley
D)
a decrease in consumer income
107)
In July, market analysts predict that the price of gold will rise in August. What happens in the gold
market in July, holding everything else constant?
107)
A)
The supply curve shifts to the left.
B)
The quantity demanded and the quantity supplied of gold increase.
C)
The demand curve shifts to the left.
D)
The supply curve shifts to the right.
108)
Refer to Figure 3–3. At a price of $5,
108)
A)
there would be a scarcity of 4 units.
B)
there would be a shortage of 6 units.
C)
there would be a surplus of 4 units.
D)
there would be a shortage of 4 units.
D
109)
The income effect of a price change refers to the impact of a change in
109)
A)
income on the price of a good.
B)
the price of a good on a consumer’s purchasing power.
C)
demand when income changes.
D)
the quantity demanded when income changes.
B
TRUE/FALSE. Write ‘T’ if the statement is true and ‘F’ if the statement is false.
110)
If the price of peaches, a substitute for plums, increases the demand for plums will decrease.
110)
111)
If the demand for a product increases and the supply of the same product decreases, the
equilibrium price will increase.
111)
112)
A positive technological change will cause the quantity supplied of a good to increase.
112)
113)
Scarcity is defined as the situation that exists when the quantity demanded for a good is greater
than the quantity supplied.
113)
114)
A normal good is a good for which the quantity demanded increases as the price decreases, holding
everything else constant.
114)
115)
As the number of firms in a market decreases, the supply curve will shift to the left and the
equilibrium price will rise.
115)
116)
In response to a shortage the market price of a good will rise; as the price rises, the demand will
decrease and supply will increase until equilibrium is reached.
116)
117)
If consumers believe the price of MP3 players will increase in the future this will cause the demand
for MP3 players to increase now.
117)
118)
The substitution effect explains why there is an inverse relationship between the price of a product
and the quantity of the product demanded.
118)
119)
The income effect of a price change refers to the change in the quantity demanded of a good that
results from a change in purchasing power as a result of the price change.
119)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
120)
Cole was discussing the market for cocoa beans with his friend John Schmidt. Cole said, “Ever since Venezuela
announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has been rising
and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping.”
Is Cole right? Briefly explain why or why not.
121)
For each of the following pairs of products state which are complements, which are substitutes, and which are
unrelated.
a. Digital camera and memory stick
b. 7Up and Mountain Dew
c. Swimsuits and flip–flops
d. Tylenol and cat food
e. Photocopier and paper
122)
If the price of a product is below equilibrium, what forces it up?
123)
According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest
level of wool production in 50 years. This record low production has driven up prices sharply in Australian
wool markets. Meanwhile, the price of raw cotton increased significantly for the first time in many years.
a. Illustrate this observation with one demand and supply graph for the market for Australian wool and
another demand and supply graph for raw cotton.
b. Make sure that your graphs clearly show (1) the initial equilibrium before the decrease in the supply of
Australian wool and (2) the final equilibrium.
c. Use arrows to indicate any shifts in the demand and supply curves for each market.
d. Label your graphs fully and write an explanation of your work.
124)
Consider the collectors’ market for first editions of two popular children’s books, Harry Potter and the Order of the
Phoenix by J. K. Rowling and Ruby in the Smoke by Philip Pullman. Sales of the Harry Potter novel are much
greater than sales of Ruby in the Smoke yet the price of the Harry Potter novel is much lower than the price of
Pullman’s novel.
a. On one large diagram, draw a demand and supply graph for first editions of Harry Potter and the Order of the
Phoenix and another demand and supply graph for first editions of Ruby in the Smoke.
b. Show how it is possible for the price of the Harry Potter novel to be much lower than the price of Pullman’s
novel, even though the demand for the Harry Potter novel is much greater than the demand for Ruby in the
Smoke.
c. Provide a written explanation to accompany your graphical illustration.
Table 3–2
Price per bushel
Quantity
Demanded
(bushels)
Quantity
Supplied
(bushels)
$2 40,000 0
436,000 4,000
630,000 8,000
824,000 16,000
10 20,000 20,000
12 18,000 28,000
14 12,000 36,000
16 6,000 40,000
125)
Refer to Table 3–2. The table contains information about the sorghum market. Use the table to answer the
following questions.
a. What are the equilibrium price and quantity of sorghum?
b. Suppose the prevailing price is $6 per bushel. Is there a shortage or a surplus in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $6 per bushel?
e. If the market price is $6 per bushel, what must happen to restore equilibrium in the market?
f. At what price will suppliers be able to sell 36,000 bushels of sorghum?
g. Suppose the market price is $14 per bushel. Is there a shortage or a surplus in the market?
h. What is the quantity of the shortage or surplus?
i. How many bushels will be sold if the market price is $14 per bushel?
j. If the market price is $14 per bushel, what must happen to restore equilibrium in the market?
126)
Shrimp is an increasingly popular part of the American diet. Louisiana shrimpers who represent the bulk of the
U.S. industry were almost all put out of business by Hurricane Katrina. How did this affect the equilibrium
price and quantity of shrimp?
127)
What is the law of supply? What does this law imply about the shape of the supply curve?
128)
Nearly a quarter of China’s 1.3 billion people are under the age of 15. How will this affect high school
enrollment over the next fifteen years? The labor market over the next fifteen years?
129)
Discuss the correct and incorrect economic analysis in the following statements.
“The United Auto Workers Union has successfully negotiated a 9 percent increase in wages for its workers. This
increase in the wage rate causes an increase in demand for automobiles, since many consumers now have
greater incomes, and also a decrease in the supply of automobiles because the cost of production has increased.
These effects cancel each other out resulting in no change in equilibrium price and quantity in the automobile
market.”
130)
Would a change in the price of in–line skates cause a change in the supply of in–line skates? Why or why not?
131)
What are the two effects that explain the Law of Demand? Briefly explain each effect.
132)
What is the difference between a “change in demand” and a “change in quantity demanded”?
133)
Discuss the correct and incorrect economic analysis in the following statements.
“If a disease kills a large number of turkeys, the supply of turkeys will decrease. This will result in a price
increase, which will then cause the supply of turkeys to increase.”