7) Refer to Figure 3-4. At a price of $25, how many units will be supplied?
A) 400
B) 500
C) 600
D) 800
8) 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.
9) Refer to Figure 3-4. At a price of $20, how many units will be sold?
A) 400
B) 500
C) 600
D) 800
10) Refer to Figure 3-4. At a price of $20, how many units will be supplied?
A) 400
B) 500
C) 600
D) 800
11) Refer to Figure 3-4. If the price is $20,
A) there is a surplus of 600 units.
B) there is a shortage of 600 units.
C) quantity demanded is zero.
D) the market is in equilibrium.
Figure 3-5
12) Refer to Figure 3-5. At a price of $5,
A) there is a surplus of 4 units.
B) there is a scarcity of 4 units.
C) there is a shortage of 6 units.
D) there is a shortage of 4 units.
13) Refer to Figure 3-5. At a price of $0,
A) there is a surplus of 8 units.
B) there is a surplus of 0 units.
C) there is a shortage of 0 units.
D) there is a shortage of 8 units.
14) 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.
15) Refer to Figure 3-5. At a price of $20, the quantity sold
A) is 0 units.
B) is 4 units.
C) is 8 units.
D) cannot be determined.
16) 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.
17) 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.
18) 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.
45
19) 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.
20) Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the
price of coffee grinders 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 coffee
grinders 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.
21) 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.
22) 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.
23) 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.
24) 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.
25) 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.
26) Competitive market equilibrium is a market equilibrium with many buyers and sellers.
27) 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.
28) A surplus is defined as the situation that exists when the quantity of a good supplied is greater than
the quantity demanded.
29) A surplus occurs when the market price is lower than the equilibrium price.
30) It is possible for a market for a good to experience a surplus and a shortage at the same time.
31) Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.
32) What is a surplus? What is a shortage?
33) What is the difference between a market equilibrium and a competitive market equilibrium?
34) 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?
35) 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 3-3
Price per
Bushel
Quantity
Demanded
(bushels)
Quantity
Supplied
(bushels)
$2
40,000
0
4
36,000
4,000
6
30,000
8,000
8
24,000
16,000
10
20,000
20,000
12
18,000
28,000
14
12,000
36,000
16
6,000
40,000
36) Refer to Table 3-3. 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?
3.4 The Effect of Demand and Supply Shifts on Equilibrium
1) Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the
market for solar panels if the government offers tax breaks to encourage manufacturers to produce
more solar panels?
A) D increases, S no change, P and Q increase
B) S increases, D no change, P decreases, Q increases
C) D and S increase, P and Q decrease
D) D no change, S increases, P decreases, Q decreases
2) Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity. What happens in the
market for sushi if the Surgeon General announces that a majority of the raw fish that is imported to
make sushi contains high levels of toxic mercury?
A) D decreases, S no change, P and Q decrease
B) S decreases, D no change, P increases, Q decreases
C) D and S decrease, P and Q decrease
D) D no change, S increases, P decreases, Q decreases
3) Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast
states. In the market for gasoline,
A) the supply curve shifted to the left resulting in an increase in the equilibrium price.
B) the supply curve shifted to the right resulting in an increase in the equilibrium price.
C) the demand curve shifted to the left resulting in a decrease in the equilibrium price.
D) the demand curve shifted to the right resulting in an increase in the equilibrium price.
4) Electric car enthusiasts want to buy more electric cars at a lower price. All of the following events
would have this effect except
A) technological advancement in the production of electric car batteries.
B) an increase in the number of manufacturers of electric cars.
C) a decrease in the price of lithium, which is used in the electric car batteries.
D) an increase in the price of gasoline.
5) Electric car manufacturers want to sell more electric cars at a higher price. Which of the following
events would have this effect?
A) technological advancement in the production of electric car batteries.
B) an increase in the number of manufacturers of electric cars.
C) a decrease in the price of lithium, which is used in the electric car batteries.
D) an increase in the price of gasoline.
6) Which of the following would cause both the equilibrium price and equilibrium quantity of barley
(assume that barley is an inferior good) to increase?
A) an increase in consumer income
B) a drought that sharply reduces barley output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of barley
7) Which of the following would cause both the equilibrium price and equilibrium quantity of oysters
(assume that oysters are a normal good) to decrease?
A) an increase in consumer income
B) an oil spill that sharply reduces oyster output
C) a decrease in consumer income
D) a technological advancement in the production of oysters
8) Which of the following would cause the equilibrium price of ketchup to increase and the equilibrium
quantity of ketchup to decrease?
A) a decrease in the price of tomatoes
B) an increase in the price of tomatoes
C) an increase in the price of mustard, a substitute for ketchup
D) an increase in the price of french fries, a complement for ketchup
9) Which of the following would cause the equilibrium price of apple juice to decrease and the
equilibrium quantity of apple juice to increase?
A) a decrease in the price of apples
B) an increase in the price of apples
C) an increase in the price of orange juice, a substitute for apple juice
D) a decrease in the price of granola bars, a complement for apple juice
10) Assume that the hourly price for the services of personal trainers has risen and sales of these
services have also risen. One can conclude that
A) the law of demand has been violated.
B) the number of personal trainers has increased.
C) the demand for personal trainers has increased.
D) personal trainers are deliberately charging high prices because they provide services for wealthy
clients.
11) Assume that the price for lawn care has fallen and sales of lawn care services have also fallen. One
can conclude that
A) the law of supply has been violated.
B) the number of lawn care service companies has increased.
C) the demand for lawn care service has decreased.
D) lawn care services are deliberately charging low prices because they want to discourage people from
maintaining their own lawns.
12) Prices of commercial airline tickets (assume that this is a normal good) have fallen in recent months.
Over this same period, the price of jet fuel has risen and consumer incomes have fallen. Which of the
following best explains the falling prices of airline tickets?
A) The supply curve for airline tickets has shifted to the left while the demand curve for airline tickets
has shifted to the right.
B) The demand curve for airline tickets has shifted to the left more than the supply curve has shifted to
the left.
C) The demand curve and the supply curve for airline tickets have both shifted to the right.
D) The supply curve for airline tickets has shifted to the left more than the demand curve has shifted to
the left.
13) Prices of smartphones (assume that this is a normal good) have fallen in recent years. Over this same
period, the price of the components used to produce smartphones has also fallen and consumer incomes
have risen. Which of the following best explains the falling prices of smartphones?
A) The supply curve for smartphones has shifted to the right while the demand curve for smartphones
has shifted to the left.
B) The demand curve for smartphones has shifted to the right more than the supply curve has shifted to
the right.
C) The demand curve and the supply curve for smartphones have both shifted to the left.
D) The supply curve for smartphones has shifted to the right more than the demand curve has shifted to
the right.
56
14) In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for
vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following
best explains the effect of these events in the wine market?
A) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result
there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase
in the equilibrium price and an uncertain effect on the equilibrium quantity.
C) Both the supply and demand curves have shifted to the right. As a result, there has been an increase
in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result,
there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
15) Assume that in recent years the cost of producing microbrew beer in the U.S. has decreased largely
due to technological improvements. At the same time, more and more Americans prefer microbrew
beer over wine. Which of the following best explains the effect of these events in the microbrew beer
market?
A) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result
there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase
in the equilibrium quantity and an uncertain effect on the equilibrium price.
C) Both the supply and demand curves have shifted to the right. As a result, there has been an increase
in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result,
there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
16) Studies have shown that drinking one glass of red wine per day may help prevent heart disease.
Assume this is true, and a fungal disease destroys a large portion of the grape harvest of California
vineyards. In the market for red wine, these two developments would
A) increase demand and increase supply, resulting in an increase in the equilibrium quantity and a
decrease in the equilibrium price of red wine.
B) increase demand and decrease supply resulting in a decrease in both the equilibrium quantity and
the equilibrium price of red wine.
C) increase demand and decrease supply, resulting in an increase in the equilibrium price and an
uncertain effect on the equilibrium quantity of red wine.
D) increase demand and decrease supply, resulting in an increase in both the equilibrium price and the
equilibrium quantity of red wine.
17) A decrease in the demand for eggs due to changes in consumer tastes, accompanied by a decrease in
the supply of eggs as a result of an outbreak of Avian flu, will result in
A) a decrease in the equilibrium quantity of eggs and no change in the equilibrium price.
B) a decrease in the equilibrium price of eggs and no change in the equilibrium quantity.
C) a decrease in the equilibrium price of eggs; the equilibrium quantity may increase or decrease.
D) a decrease in the equilibrium quantity of eggs; the equilibrium price may increase or decrease.
18) An increase in the demand for peanuts due to changes in consumer tastes, accompanied by an
increase in the supply of peanuts as a result of favorable growing conditions, will result in
A) an increase in the equilibrium quantity of peanuts and no change in the equilibrium price.
B) an increase in the equilibrium price of peanuts and no change in the equilibrium quantity.
C) an increase in the equilibrium price of peanuts; the equilibrium quantity may increase or decrease.
D) an increase in the equilibrium quantity of peanuts; the equilibrium price may increase or decrease.
58
Figure 3-7
19) Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves
for blu-ray discs. Which panel best describes what happens in this market if there is a substantial
increase in the price of blu-ray players?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
59
20) Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves
for laptop computers. Which panel best describes what happens in this market when the price of
computer hard drives falls?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
21) Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves
for tuna. Which panel best describes what happens in this market when there is a decrease in the
productivity of commercial fishermen?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)
22) Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves
for frozen yogurt. Which panel describes what happens in the market for frozen yogurt when the price
of ice cream, a substitute product, increases?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)