Chapter 2: DEMAND, SUPPLY, AND MARKET EQUILIBRIUM
Multiple Choice
2-1 If the price of a complement for tires decreases, all else equal,
a. quantity demanded for tires will decrease.
b. quantity supplied for tires will decrease.
c. demand for tires will increase.
d. demand for tires will decrease.
e. supply for tires will increase.
2-2 The market demand curve for a given good shifts when there is a change in any of the following
factors EXCEPT
a. the price of the good.
b. the level of consumers’ income.
c. the prices of goods related in consumption.
d. the tastes of consumers.
2-3 Which of the following would DECREASE the demand for tennis balls?
a. An increase in the price of tennis balls
b. A decrease in the price of tennis rackets
c. An increase in the cost of producing tennis balls
d. A decrease in average household income when tennis balls are a normal good
2-4 If input prices increase, all else equal,
a. quantity supplied will decrease.
b. supply will increase.
c. supply will decrease.
d. demand will decrease.
2-5 Which of the following would increase the supply of corn?
a. an increase in the price of pesticides
b. a decrease in the demand for corn
c. a fall in the price of corn
d. a severe drought in the corn belt
e. a decrease in the price of wheat
2-6 When Sonoma Vineyards reduces the price of its Cabernet Sauvignon from $15 a bottle to $12 a
bottle, the result is an increase in
a. the demand for this wine.
b. the supply of this wine.
c. the quantity of this wine demanded.
d. the quantity of this wine supplied.
2-7 Which of the following will cause a change in quantity supplied?
a. a change in input prices
b. a technological change
c. a change in the number of firms in the market
d. a change in the market price of the good
2-8 When the average price of videocassette recorders (VCRs) falls, the result is
a. an increase in supply of VCRs.
b. an increase in the quantity of VCRs supplied.
c. an increase in the quantity of VCRs demanded.
d. a decrease in the quantity of VCRs demanded.
2-9 Use the following general linear demand relation:
Qd=680 –9P+0.006 M–4P
R
where M is income and
P
R
is the price of a related good, R. From this relation it is apparent that
the good is:
a. an inferior good
b. a substitute for good R
c. a normal good
d. a complement for good R
e. both c and d
2-10 Use the following general linear demand relation:
Qd=680 –9P+0.006 M–4P
R
where M is income and
P
R
is the price of a related good, R. If M = $15,000 and
P
R
= $20, the
demand function is
a.
P=690 –9Qd
.
b.
Qd=690 –9P
.
c.
Qd=680 –9P
.
d.
P=680 –9Qd
.
e.
Qd=800 –19P
.
2-11 Use the following general linear demand relation:
Qd=680 –9P+0.006 M–4P
R
where M is income and
P
R
is the price of a related good, R. If M = $15,000 and
P
R
= $20 and the
supply function is
Qs=30 +3P
, equilibrium price and quantity are, respectively,
a. P = $55 and Q = 195.
b. P = $6 and Q = 38.
c. P = $12 and Q = 200.
d. P = $50 and Q = 170.
e. P = $40 and Q = 250.
2-12 Use the following general linear demand relation:
Qd=680 –9P+0.006 M–4P
R
where M is income and
P
R
is the price of a related good, R. If M = $15,000 and
P
R
= $20 and the
supply function is
Qs=30 +3P
, then, when the price of the good is $60,
a. there is a shortage of 60 units of the good.
b. there is equilibrium in the market.
c. there is a surplus of 60 units of the good.
d. the quantities demanded and supplied are indeterminate.
2-13 Use the following general linear demand relation:
Qd=680 –9P+0.006 M–4P
R
where M is income and
P
R
is the price of a related good, R. If M = $15,000 and
P
R
= $20 and the
supply function is
Qs=30 +3P
, then, when the price of the good is $40,
a. there is equilibrium in the market.
b. there is a shortage of 180 units of the good.
c. there is a surplus of 180 units of the good.
d. there is a shortage of 80 units of the good.
2-14 Use the following demand and supply functions:
Demand:
Qd=50 –4P
Supply:
Equilibrium price and output are
a. P = $5 and Q = 70.
b. P = $11 and Q = 3.32.
c. P = $12 and Q = 44.
d. P = $15 and Q = 50.
e. none of the above
2-15 Use the following demand and supply functions:
Demand:
Qd=50 –4P
Supply:
If the price is $10, there is a
a. surplus of 30 units.
b. shortage of 30 units.
c. surplus of 40 units.
d. shortage of 10 units.
e. none of the above
2-16 Use the following demand and supply functions:
Demand:
Qd=50 –4P
Supply:
If the price is $2, there is a
a. surplus of 10 units.
b. shortage of 10 units.
c. surplus of 30 units.
d. shortage of 18 units.
e. none of the above
2-17 Refer to the figure below:
If price is $16 there is
a. a shortage of 250 units.
b. a surplus of 250 units.
c. a shortage of 125 units.
d. a surplus of 125 units.
e. equilibrium in the market.
2-18 Refer to the figure below:
If the price is $16, the resulting
a. surplus will lead to a fall in price.
b. shortage will lead to a fall in price.
c. surplus will lead to a rise in price.
d. shortage will lead to a rise in price.
2-19 Refer to the figure below:
If price is $8,
a. there will be a surplus of 150 units.
b. there will be a shortage of 150 units.
c. price will fall.
d. shortage of 75 units.
e. surplus of 75 units.
2-20 Suppose that the market for salad dressing is in equilibrium. Then the price of lettuce rises. What
will happen?
a. The price of salad dressing will rise.
b. The supply of salad dressing will decrease.
c. The demand for salad dressing will decrease.
d. The quantity demanded of salad dressing will increase.
2-21 Scientists have developed a bacterium they believe will lower the freezing point of agricultural
products. This innovation could save farmers $1 billion a year in crops now lost to frost damage.
If this technology becomes widely used, what will happen to the equilibrium price and quantity
in, for example, the potato market?
a. price will decrease, quantity will decrease
b. price will decrease, quantity will increase
c. price will increase, quantity will decrease
d. price will increase, quantity will increase
e. The change in equilibrium price and quantity is indeterminate.
2-22 Suppose that the market for engagement rings is in equilibrium. Then political unrest in South
Africa shuts down the diamond mines there. South Africa is the world’s primary supplier of
diamonds. What will happen?
a. The equilibrium quantity of engagement rings will decrease.
b. The equilibrium price of engagement rings will decrease.
c. The demand for engagement rings will decrease.
d. The supply of engagement rings will increase.
2-23 So long as the actual market price exceeds the equilibrium market price, there will be
a. downward pressure on the price.
b. upward pressure on the price.
c. excess demand.
d. a shortage.
2-24 In which of the following cases will the effect on equilibrium output be indeterminate (i.e.,
depend on the magnitudes of the shifts in supply and demand)?
a. Demand increases and supply increases
b. Demand decreases and supply decreases
c. Demand decreases and supply increases
d. Demand remains constant and supply increases
2-25 Increases in the wage rates of coal miners and decreases in the price of natural gas would cause
the price of coal to
a. rise, fall, or remain unchanged depending on the magnitude of the changes, but the
equilibrium quantity of coal would fall.
b. rise, fall, or remain unchanged depending on the magnitude of the changes, but the
equilibrium quantity of coal would increase.
c. rise, but the equilibrium quantity of coal would rise or fall depending on the magnitude of
the changes.
d. rise, but the equilibrium quantity of coal would fall.
e. fall, but the equilibrium quantity of coal would rise or fall depending on the magnitude of
the changes.
2-26 Refer to the figure below:
In the figure, the equilibrium price and quantity are
a. P = $6 and Q = 800.
b. P = $4 and Q = 300.
c. P = $4 and Q = 400.
d. P = $6 and Q = 300.
e. P = $7 and Q = 800.
2-27 Refer to the figure below:
Let demand remain constant at D; an increase in wages causes firms to be willing and able to sell
150 fewer units at each price than they were before the wage increase.
a. The new equilibrium price and quantity will be P = $6 and Q = 150.
b. The new equilibrium price and quantity will be P = $6 and Q = 400.
c. The new equilibrium price and quantity will be P = $7 and Q = 250.
d. The new equilibrium price and quantity will be P = $8 and Q = 300.
2-28 Refer to the figure below:
Let supply remain constant at S; a decrease in income causes consumers to be willing and able to
purchase 150 fewer units at each price than they were previously.
a. The new equilibrium price and quantity will be P = $6 and Q = 150.
b. The new equilibrium price and quantity will be P = $5 and Q = 150.
c. The new equilibrium price and quantity will be P = $7 and Q = 250.
d. The new equilibrium price and quantity will be P = $5 and Q = 200.
2-29 Refer to the figure below:
Let supply remain constant at S; an increase in the price of a substitute good causes consumers to
be willing and able to buy 150 more units of the good at each price in the list than they were
when demand was D. Which of the following statements is (are) true?
a. At the original equilibrium price there will be a shortage of 150.
b. At the original equilibrium price there will be a surplus of 150
c. At the new equilibrium P = $6 and Q = 450.
d. At the new equilibrium P = $7 and Q = 400.
e. both a and d
2-30 Use the following demand and supply functions:
Demand:
Qd=900 –60P
Supply:
Qs= – 200 +50P
Equilibrium price and output are
a. P = $7 and Q = 480.
b. P = $10 and Q = 300.
c. P = $20 and Q = 150.
d. P = $100 and Q = 5,300.
2-31 Use the following demand and supply functions: