Figure 3-2
9) Refer to Figure 3-2. A technological advancement would be represented by a movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
10) Refer to Figure 3-2. An increase in the expected future price of the product would be
represented by a movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
11) Refer to Figure 3-2. A decrease in the price of inputs would be represented by a movement
from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
12) Refer to Figure 3-2. An increase in the price of the product would be represented by a
movement from
A) A to B.
B) B to A.
C) S1 to S2.
D) S2 to S1.
13) If the United States lifted the embargo on Cuban products, what would happen in the U.S.
market for Cuban cigars?
A) The supply curve would shift to the left.
B) The supply curve would shift to the right.
C) The demand curve would shift to the right.
D) The demand curve would shift to the left.
14) George Gnat subscribes to a monthly pest control service for his home. Last week the owner
of the service informed George that he will have to raise his monthly service fee because of
increases in the price of gasoline used by his workers on their service trips. How is the market
for pest control services affected by this?
A) There is an increase in the supply of pest control services.
B) There is a decrease in the demand for pest control services.
C) There is a decrease in the quantity supplied of pest control services.
D) There is a decrease in the supply of pest control services.
15) The growing popularity of energy conservation has enticed large home improvement stores
like Home Depot and Lowes to offer tankless water heaters. How does the fact that home
improvement stores now offer these products affect the tankless water heater market?
A) The demand curve for tankless water heaters shifts to the right.
B) The demand curve for tankless water heaters shifts to the left.
C) The supply curve for tankless water heaters shifts to the right.
D) The supply curve for tankless water heaters shifts to the left.
16) Farmers can plant either corn or soybeans in their fields. Which of the following would
cause the supply of soybeans to increase?
A) an increase in the price of soybeans
B) a decrease in the price of corn
C) an increase in the demand for corn
D) an increase in the price of soybean seeds
17) Which of the following would shift the supply curve for energy drinks to the left?
A) a decrease in the expected future price of energy drinks
B) an increase in consumer income (assuming that energy drinks are normal goods)
C) a decrease in the number of firms that produce energy drinks
D) a decrease in the price of an input used to produce energy drinks
18) If a firm expects that the price of its product will be lower in the future than it is today
A) the firm has an incentive to increase supply now and decrease supply in the future.
B) the firm has an incentive to decrease supply now and increase supply in the future.
C) the firm has an incentive to increase quantity supplied now and decrease quantity supplied in
the future.
D) the firm will not change supply until it knows for certain what will happen to its price.
19) A firm has an incentive to decrease supply now and increase supply in the future if it expects
that
A) more firms will enter the market in the future.
B) the prices of inputs used to produce the product will rise in the future.
C) the price of its product will be lower in the future than it is today.
D) the price of its product will be higher in the future than it is today.
20) The supply curve for umbrellas
A) shows the supply of umbrellas consumers are willing and able to buy at any given price.
B) is downward sloping.
C) shows the relationship between the quantity of umbrellas firms are willing and able to supply
and the quantity of umbrellas consumers are willing and able to purchase.
D) shows the relationship between the price of umbrellas and the quantity of umbrellas supplied.
21) An increase in the price of MP3 players will result in
A) a smaller quantity of MP3 players supplied.
B) a larger quantity of MP3 players supplied.
C) a decrease in the demand for MP3 players.
D) an increase in the supply of MP3 players.
22) A positive technological change will cause the quantity supplied of a good to increase.
23) An increase in quantity supplied is represented by a rightward shift of the supply curve.
24) A decrease in the price of inputs will cause the supply curve for a product to shift to the
right.
25) All else equal, as the price of a product falls, the quantity supplied decreases.
26) What are the five most important variables that shift the market supply curve?
27) Would a change in the price of in-line skates cause a change in the supply of in-line skates?
Why or why not?
28) Indicate whether each of the following situations would shift the supply curve to the left, to
the right, or not at all.
a. An increase in the price of an input
b. An increase in productivity
c. An increase in the price of a substitute in production
d. A decrease in the expected future price of a product
e. A decrease in the current price of the product
3.3 Market Equilibrium: Putting Demand and Supply Together
1) At market equilibrium,
A) demand equals supply.
B) quantity demanded equals quantity supplied.
C) surpluses are greater than shortages.
D) shortages are greater than surpluses.
2) At a product’s equilibrium price
A) anyone who needs the product will be able to buy the product, regardless of ability to pay.
B) the federal government will provide the product to anyone who cannot afford it.
C) not all sellers who are willing to accept the price will find buyers for their products.
D) any buyer who is willing and able to pay the price will find a seller for the product.
Figure 3-3
3) Refer to Figure 3-3. The figure above shows the supply and demand curves for two markets:
the market for original Michelangelo sculptures and the market for Ray Ban sunglasses. Which
graph most likely represents which market?
A) Graph B represents the market for original Michelangelo sculptures and Graph A represents
the market for Ray Ban sunglasses.
B) Graph A represents the market for original Michelangelo sculptures and Graph B represents
the market for Ray Ban sunglasses.
C) Graph A represents both the market for original Michelangelo sculptures and Ray Ban
sunglasses.
D) Graph B represents both the market for original Michelangelo sculptures and Ray Ban
sunglasses.
4) 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
A) a surplus of gasoline.
B) the quantity demanded equal to the quantity supplied.
C) a shortage of gasoline.
D) an increase in the demand for gasoline.
Special Feature: None
Figure 3-4
5) Refer to Figure 3-4. If the price is $25,
A) there would be a surplus of 300 units.
B) there would be a shortage of 300 units.
C) there would be a surplus of 200 units.
D) there would be a shortage of 200 units.
6) Refer to Figure 3-4. At a price of $25, how many units will be sold?
A) 400
B) 500
C) 600
D) 800
7) Refer to Figure 3-4. If the current market price is $25, the market will achieve equilibrium by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Figure 3-5
8) Refer to Figure 3-5. At a price of $5,
A) there would be a surplus of 4 units.
B) there would be a scarcity of 4 units.
C) there would be a shortage of 6 units.
D) there would be a shortage of 4 units.
9) Refer to Figure 3-5. At a price of $15, the quantity sold
A) is 2 units.
B) is 4 units.
C) is 6 units.
D) cannot be determined.
10) Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.
11) Assume there is a surplus in the market for hybrid automobiles. Which of the following
statements correctly describes this situation?
A) The supply of hybrid automobiles is greater than the demand for hybrid automobiles.
B) Some consumers will be unable to obtain hybrid automobiles at the market price and will
have an incentive to offer to buy the product at a higher price.
C) The price of hybrid automobiles will fall in response to the surplus; as the price falls the
quantity demanded will increase and the quantity supplied will decrease.
D) the surplus will cause an increase in the equilibrium price of hybrid automobiles.
12) Which of the following describes a characteristic of a perfectly competitive market?
A) There are many buyers but few sellers.
B) There are many sellers but few buyers.
C) There are many buyers and sellers.
D) Equilibrium is achieved when demand for the product sold in the market equals the supply.
Figure 3-6
13) Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume
that the market price is $21. Which of the following statement is true?
A) There is a shortage that will cause the price to increase; quantity demanded will then decrease
and quantity supplied will increase until the price equals $25.
B) There is a shortage that will cause the price to increase; quantity supplied will then decrease
and quantity demanded will increase until the price equals $25.
C) There will be a shortage that will cause the price to increase; demand will then decrease and
supply will increase until the price equals $25.
D) There is a shortage that will cause the price to decrease; quantity demanded will then increase
and quantity supplied will decrease until the price equals $25.
14) Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume
that the price of tote bags is $50. At this price:
A) the quantity supplied exceeds the quantity supplied by 100. The price will eventually fall to
$25 where quantity demanded will equal quantity supplied.
B) the supply exceeds the demand by 90. Some producers will have an incentive to offer to sell
tote bags at a lower price.
C) there is a surplus equal to 90 coffee grinders that will be eliminated when the price falls to
$25.
D) there is a surplus equal to 90 coffee grinders and the price of coffee grinders will fall until
demand is equal to supply.
15) Refer to Figure 3-6. The figure above represents the market for coffee grinders. Compare
the conditions in the market when the price is $15 and when the price is $21. Which of the
following describes how the market differs at these prices?
A) At each price there is a shortage; the shortage is greater at $15 than at $21.
B) The difference between quantity supplied and quantity demanded is greater at $21 than at
$15.
C) At each price there is a shortage; firms will raise the equilibrium price in order to eliminate
the shortage.
D) At each price the demand for coffee grinders exceeds the supply of coffee grinders.
16) If the quantity demanded for a product exceeds the quantity supplied, the market price will
rise until
A) the quantity demanded equals the quantity supplied. The product will then no longer be
scarce.
B) quantity demanded equals quantity supplied. The equilibrium price will then be greater than
the market price.
C) only wealthy consumers will be able to afford the product.
D) quantity demanded equals quantity supplied. The market price will then equal the
equilibrium price.
17) Which of the following is evidence of a shortage of chocolate?
A) Firms lower the price of chocolate.
B) The price of chocolate is raised in order to increase sales.
C) The equilibrium price of chocolate falls due to a decrease in demand.
D) The quantity of chocolate demanded is greater than the quantity supplied.
18) Even when the demand for one good is high, the price of the good is also affected by supply.
The textbook illustrates this by comparing the price of two items that were auctioned on the same
day. Which of the following describes the results of the auction?
A) A letter written by Abraham Lincoln sold for a higher price than a letter written by John
Wilkes Booth.
B) A letter written by Abraham Lincoln was sold for a higher price than a letter written by Adam
Smith.
C) A letter written by John Wilkes Booth sold for a higher price than a letter written by Lee
Harvey Oswald.
D) A letter written by John Wilkes Booth sold for a higher price than a letter written by Abraham
Lincoln.
19) If the demand for letters written by Abraham Lincoln is higher than the demand for letters
written by John Wilkes Booth, what would have to be true for the market equilibrium prices for
these letters to be equal?
A) The supply of Lincoln letters would have to be less than the supply of Booth letters.
B) The supply of Booth letters would have to be less than the supply of Lincoln letters.
C) The supply of Lincoln letters and the supply of Booth letters would have to be equal.
D) If the demand for Lincoln letters is greater than the demand for Booth letters, the market
equilibrium price for Lincoln letters will always be greater than the market equilibrium price for
Booth letters.
20) 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.
21) A surplus is defined as the situation that exists when the quantity of a good supplied is
greater than the quantity demanded.
22) Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.
23) 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.
24) In much of Europe, the legal age to obtain a driver’s license is 18. If the legal driving age in
the United States was changed to 18, how would this affect the market for new automobiles? The
market for automobile insurance?
Table 3-2
Price per
Bushel
Quantity
Demanded
(bushels)
$2
40,000
4
36,000
6
30,000
8
24,000
10
20,000
12
18,000
14
12,000
16
6,000
25) 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?