Deck 2: Supply and Demand

Question 1

In the supply and demand model, we assume that there are _____ buyers and _____ sellers in the market.

A) many; many
B) several; several
C) many; several
D) several; many

Answer 1

A

Question 2

Which of the following statements is TRUE?

A) A demand curve shows the relationship between a product's price and the number of units consumers want to buy at each price, assuming there are no changes in other factors affecting demand.
B) A demand curve shows the relationship between consumer income and the quantity purchased of some product.
C) A demand curve shows the relationship among consumer income, price of a product, quantity supplied, and the number of units of that product consumers want to buy.
D) A demand curve is drawn with the assumption that demand equals supply.

Answer 2

A

Question 3

(Figure 2.1) A salmonella outbreak would shift the demand curve for turkey from D₁ to _____, and a discovery that eating turkey reduces muscle fatigue in athletes would shift the demand curve for turkey from D₁ to _____.

A) D₂; D₃
B) D₃; D₂
C) D₃; D₃
D) D₂; D₂

Answer 3

A

Question 4

The demand curve for a good is Q = 80 - 0.20P, where Q is the quantity demanded and P is the price per unit. This good's inverse demand curve is:

A) P = 80 - 0.20Q.
B) P = 40 - Q.
C) P = 5Q + 40.
D) P = 400 - 5Q.

Question 5

One assumption of the supply and demand model is that:

A) several large sellers can raise prices by restricting output.
B) buyers with bargaining power are able to receive quantity discounts.
C) all of the goods in the market sell for the same price.
D) larger firms sell their products at lower prices than smaller firms.

Question 6

Genetically modified soybean seed is an example of a new technology that has increased productivity. As a result, this new technology _____ production costs and _____ the supply of soybeans.

A) raised; increased
B) lowered; decreased
C) lowered; increased
D) raised; decreased

Question 7

Which of the following statements is TRUE?

A) I
B) II and III
C) I, II, and III
D) I and III

Question 8

Suppose that the supply of a good is given by Q = -50 + 5P, where Q is the quantity supplied and P is the price measured in dollars per unit. This equation indicates that the quantity supplied increases by _____ units for every dollar increase in price.

A) 5
B) 45
C) 50
D) 55

Question 9

Electric guitars and amplifiers are complement goods, and electric guitars and acoustic guitars are substitute goods. An increase in the price of amplifiers _____ the number of electric guitars consumers want to buy, while an increase in the price of acoustic guitars _____ the number of electric guitars consumers want to buy.

A) increases; decreases
B) decreases; increases
C) decreases; decreases
D) increases; increases

Question 10

Suppose that farmers can use their land to grow and sell soybeans and cotton. Cotton prices have risen. Farmers respond by producing _____ soybeans and _____ cotton.

A) more; less
B) less; more
C) more; more
D) less; less

Question 11

A key assumption of the supply and demand model is that:

A) each firm's good is unique and cannot be duplicated by other firms in the market.
B) firms will continue to raise price until profits become positive.
C) each firm in the market produces an identical good.
D) each firm produces at a level of output at which price exceeds marginal cost.

Question 12

Use the following to answer question:
Figure 2.3
(Figure 2.3) An increase in quantity supplied could be indicated by:

A) the supply curve shifting from S₁ to S₂.
B) the supply curve shifting from S₁ to S₃.
C) movement up and along supply curve S₁.
D) the supply curve shifting from S₃ to S₂.

Question 13

Which of the following is not an assumption underlying the supply and demand model?

A) The focus is on supply and demand in a single market.
B) All goods sold in the market are identical.
C) Different firms sell their goods at different prices.
D) There are many producers and consumers in the market.

Question 14

Which of the following will not cause demand for apples to increase or decrease?

A) a reduction in the price of apples.
B) a reduction in the price of a complement for apples.
C) an increase in income.
D) a decrease in the number of consumers in the market.

Question 15

Which of the following factors influences demand?

A) I and IV
B) II and III
C) I, III, and IV
D) I, II, III, and IV

Question 16

Which of the following is a key assumption of the supply and demand model?

A) that the price and quantity sold are determined in a single market
B) that the prices and quantities sold are simultaneously determined in all markets
C) the way the whole economy achieves equilibrium
D) that international markets affect domestic markets, which in turn affect local markets

Question 17

Use the following to answer questions 11-12:
Figure 2.1
(Figure 2.1) Mathematically, the demand curve D₁ is described by this equation:

A) Q = 0.75 - P.
B) Q = 6 - 0.75P.
C) Q = 8 - 1.33P.
D) P = 6 - 8P.

Question 18

If the demand curve is Q_D = 10 - 2P, then the lowest price at which no consumer is willing to buy the good (i.e., the demand choke price) is:

A)10.
B)2)
C)7)
D) 5.

Question 19

If the supply curve is Q_S = 4P - 4, then the highest price at which no producer is willing to sell the good (i.e., the supply choke price) is:

A) 1
B) 4
C) 3
D) 2

Question 20

Use the following to answer question:
Figure 2.2
(Figure 2.2) If the price of turkey is $4 per pound, _____ pounds of turkey will be offered for sale; if the price of turkey is $7 per pound, _____ pounds of turkey will be offered for sale.

A) 3,000; 6,000
B) 0; 6,000
C) 2,000; 5,000
D) 1,000; 8,000

Question 21

In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?

A) an increase in supply and a decrease in demand
B) an increase in demand
C) a decrease in supply
D) an increase in supply

Question 22

Use the following to answer question:
Figure 2.5
(Figure 2.5) Which of the following events could have caused the demand curve to shift?

A) I, II, III, and IV
B) III and IV
C) II, III, and IV
D) I and II

Question 23

Suppose a fall in consumer income drives down the demand for lobster while a record harvest increases supply. How would these changes affect the equilibrium price and quantity of lobsters?

A) Both equilibrium price and equilibrium quantity would decrease.
B) The equilibrium price would fall, but the effect on the equilibrium quantity cannot be predicted.
C) The equilibrium price would fall and the equilibrium quantity would increase.
D) The equilibrium quantity would increase, but the effect on price cannot be predicted.

Question 24

Many video game makers in the early 1980s went out of business because:

A) a large increase in the supply of games lowered the price of video games so much that it made them unprofitable.
B) a large decrease in the supply of games raised the price of video games so much that consumers stopped buying them.
C) a large decrease in consumer demand lowered the price of video games so much that it made them unprofitable.
D) a large increase in consumer demand raised the price of video games to the point that they were no longer affordable.

Question 25

The Internet has made learning to play a musical instrument easier than ever, with thousands of Web sites offering free music lessons. What happens in the musical instruments market as a result of the availability of these free lessons?

A) The supply curve increases, pushing down the price.
B) The demand curve shifts out, pushing up the price.
C) The demand curve shifts out, which in turn causes the supply curve to increase. The overall effect on price is ambiguous.
D) The price of musical instruments falls, causing an increase in the quantity demanded.

Question 26

A decrease in both demand and supply will cause a(n) _____ equilibrium price and a(n) _____ equilibrium quantity.

A) uncertain effect on; decrease in
B) increase in; decrease in
C) increase in; uncertain effect on
D) decrease in; uncertain effect on

Question 27

What happens in the market for Blu-ray discs if the price of Blu-ray players falls?

A) The demand for Blu-ray discs increases.
B) The quantity demanded of Blu-ray discs increases.
C) The supply of Blu-ray discs increases.
D) The demand and supply of Blu-ray discs increase.

Question 28

Use the following to answer questions 24-26:
Figure 2.4
(Figure 2.4) An excess supply of 3,000 pounds occurs at a price of:

A) $2.
B) $5.
C) $6.
D) $8.

Question 29

The market for matsutake mushrooms is characterized by the following demand and supply equations: Q^D = 100 - P and Q^S = -50 + 2P, where Q is measured in pounds and P is measured in price per pound. If a new fertilizer increases the quantity supplied by 30 pounds at every price, the equilibrium price changes from _____ to _____.

A) $50; $70
B) $100; $30
C) $150; $110
D) $50; $40

Question 30

Use the following to answer question:
Figure 2.6
(Figure 2.6) Suppose that the demand curve in both markets shifts out by the same distance. The change in price will be larger in _____, and the change in quantity will be larger in _____.

A) market A; market A
B) market A; market B
C) market B; market A
D) market B; market B

Question 31

Suppose that the equilibrium price of blackberries is $3 per pound, and the price of black raspberries (a substitute for blackberries) increases. What happens in the market for blackberries?

A) An excess supply of blackberries at $3 per pound leads to an increase in quantity demanded and a decrease in quantity supplied.
B) The demand curve for blackberries shifts to the right, reflecting an increase in both the equilibrium price and the quantity.
C) An excess demand of blackberries at $3 per pound results in a new equilibrium price that is less than $3 per pound.
D) The demand curve for blackberries decreases, reducing the equilibrium price and raising the equilibrium quantity.

Question 32

An increase in input prices causes:

A) the market supply to shift inward, driving the equilibrium price downward.
B) the market supply to shift outward, leading to a higher equilibrium price.
C) the market supply to shift inward, driving the equilibrium price higher.
D) the supply curve to decrease and the demand curve to decrease.

Question 33

If the price of crude oil increases and the number of people who own cars falls:

A) the equilibrium price of gasoline will increase and equilibrium quantity of gasoline will decrease.
B) the equilibrium price of gasoline will decrease and equilibrium quantity of gasoline will be uncertain.
C) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will decrease.
D) the equilibrium price of gasoline will be uncertain and equilibrium quantity of gasoline will increase.

Question 34

If a 10% increase in the price of pork reduces quantity demanded by 7%, the price elasticity of demand is:

A) -1.43.
B) -0.14.
C) -3.0.
D) -0.70.

Question 35

Suppose that the demand and supply curves for green peas are given by Q^D = 10 - 8P and Q^S = 2P, where P is price per pound and Q is measured in thousands of pounds. If the price per pound of peas is $0.50, the market _____, so the price will _____.

A) has excess demand of 3,000 pounds; rise
B) has excess supply of 1,000 pounds; fall
C) is in equilibrium; remain unchanged
D) has excess demand of 5,000 pounds; rise

Question 36

In the blackberry market, the quantity demanded is given by Q^D = 2,600 - 500P, and the quantity supplied is given by Q^S = -400 + 100P. What are the equilibrium price and equilibrium quantity?

A) $5 and 100 pounds
B) $4.25 and 3,000 pounds
C) $2.50 and 900 pounds
D) $1.80 and 2,200 pounds

Question 37

Suppose that we observe a decrease in the price of sunscreen and fewer people buying sunscreen. What could have caused this change?

A) a violation of the law of demand
B) a tax on sunscreen manufacturers
C) a new study documenting that the ingredients in sunscreen are linked to an increased risk of malignant melanoma, a dangerous form of skin cancer
D) a new production process that reduces the costs of making sunscreen

Question 38

Use the following to answer questions 24-26:
Figure 2.4
(Figure 2.4) At a price of $2, there is an excess:

A) supply of 4,000 pounds.
B) supply of 3,000 pounds.
C) demand of 3,000 pounds.
D) demand of 1,000 pounds.

Question 39

Use the following to answer questions 24-26:
Figure 2.4
(Figure 2.4) At what price does the quantity demanded by consumers equal the quantity supplied by producers?

A) $5
B) $4
C) $1
D) $3

Question 40

Use the following to answer question:
Figure 2.3
(Figure 2.3) What could cause the supply curve to shift from S₁ to S₂?

A) an increase in the number of asparagus farmers
B) poor weather conditions that reduce the asparagus harvest
C) better fertilizers that lower the costs of production
D) a decrease in the price of asparagus

Question 41

Suppose that the supply of oil to Pittsburgh, Pennsylvania, is perfectly elastic. If more people move to Pittsburgh because of its great football and hockey teams, what happens to the equilibrium price and quantity of oil in Pittsburgh?

A) Both the equilibrium price and the quantity increase.
B) The equilibrium price increases, but the equilibrium quantity is unchanged.
C) The equilibrium quantity increases, but the equilibrium price is unchanged.
D) Both the equilibrium price and the quantity are unchanged.

Question 42

Use the following to answer question:
Figure 2.10
(Figure 2.10) What is the price elasticity of demand at point A?

A) -2.6
B) -1.54
C) -0.7
D) -3.2

Question 43

In market A, a 4% increase in price reduces quantity demanded by 2%. In market B, a 3% increase in price reduces quantity demanded by 4%. The price elasticity of demand in market A and market B are considered_____ and _____, respectively.

A) elastic; inelastic
B) inelastic; elastic
C) perfectly elastic; unit elastic
D) unit elastic; perfectly inelastic

Question 44

The inverse demand curve for eggs is P = 20 - 0.25Q. What is the price elasticity of demand at P = $4?

A) -0.45
B) -2.0
C) -4.0
D) -0.25.

Question 45

The demand curve for a product is Q = 50 - 0.5P. What is the price elasticity of demand at a price of $60?

A) -1.50
B) -1.0
C) -0.80
D) -0.25

Question 46

The income elasticity of demand for dental services is 2.40, and the income elasticity of demand for nursing homes is 0.90. Based on these estimates, dental services are a(n) _____ and nursing home care is a(n) _____.

A) luxury good; normal good
B) normal good; inferior good
C) inferior good; luxury good
D) normal good; luxury good

Question 47

On some days Gus makes his own salad for lunch, preferring to use either iceberg or romaine lettuce, topped off with lots of fresh tomatoes. The cross-price elasticity of demand for iceberg lettuce with respect to romaine lettuce is _____, and the cross-price elasticity of demand for iceberg lettuce with respect to tomatoes is _____.

A) positive; negative
B) negative; positive
C) zero; positive
D) negative; zero

Question 48

Consumers are particularly price-responsive when:

A) it is difficult to substitute across suppliers and prices are high.
B) prices are low and they have little time to change their consumption patterns.
C) a product has many substitutes and they have a long time to adjust their consumption.
D) there are few substitute goods available for a product, and they have a short time horizon to adjust their consumption.

Question 49

Use the following to answer question:
Figure 2.11
(Figure 2.11) Which of the following statements is TRUE regarding the figure?

A) I and III
B) I, II, and III
C) II and III
D) II

Question 50

The price of baseball tickets increased by 5%, leading to a 3% decrease in the number of tickets sold. Given this specific situation, total expenditures on baseball tickets:

A) fell.
B) stayed the same.
C) increased.
D) could have increased, decreased, or stayed the same depending on the price elasticity of demand.

Question 51

Use the following to answer question:
Figure 2.8
(Figure 2.8) Which of the following statements is TRUE?

A) III only
B) II and IV
C) I, II, III, and IV
D) I and II

Question 52

Use the following to answer question:
Figure 2.7
(Figure 2.7) What is the price elasticity of demand at point A and point B?

A) point A = -2.0, point B = -0.50
B) point A = -0.50, point B = -0.50
C) point A = -1.0, point B = -2.0
D) point A = -2.5, point B = -1.5

Question 53

Suppose that the cross-price elasticity of demand for movie popcorn with respect to movie tickets is -0.75. If the price of movie tickets rises by 4%, the quantity demanded of movie popcorn will:

A) fall by 18.75%.
B) fall by 30%.
C) rise by 3%.
D) fall by 3%.

Question 54

An increase in the price of computer chips causes a decrease in the total revenue of computer chip manufacturers. The price elasticity of demand for computer chips is:

A) positive and elastic.
B) inelastic.
C) elastic.
D) positive and inelastic.

Question 55

Two firms, Boeing and Airbus, produce large commercial airplanes. Boeing and Airbus have different flight control systems, with many pilots preferring one system to the other. Also, the Airbus A380, at $375.3 million, has a double-deck design that can hold up to 840 passengers. The Boeing 747 can hold up to 568 passengers, and it sells for $317.5 million. What key assumptions of the supply and demand model are violated in the large commercial airplane market?

Question 56

Use the following to answer question:
Figure 2.9
(Figure 2.9) The price elasticity of supply at $4 is:

A)0)
B)4)
C) infinity.
D) 0.67.

Question 57

Use the following to answer question:
Figure 2.12
(Figure 2.12) As the price of the product rises from $0 to $40, what happens to total expenditures?

A) Total expenditures increase, reaching a maximum at a price of $40.
B) Total expenditures remain unchanged.
C) Total expenditures decrease, reaching a minimum at a price of $40.
D) Total expenditures first increase and then decrease, as price approaches the midpoint of the demand curve.

Question 58

If a 5% increase in income increases quantity demanded by 4%, the income elasticity of demand is:

A) 1.25.
B) 0.80.
C) 2.0.
D) 0.02.

Question 59

If the inverse demand curve for a good is given by P = 100 - 4Q, the price elasticity of demand is elastic at a price of _____ and inelastic at a price of _____.

A) $40; $60
B) $60; $50
C) $55; $35
D) $35; $30

Question 60

List the four basic assumptions of the supply and demand model.

Question 61

Suppose that the demand and supply curve for a good are given by Q^D = 90 - P and Q^S = 4P - 10.

Question 62

The supply curve of rubber balls is given by Q = 100P - 10.

Question 63

What is the difference between a change in supply and a change in quantity supplied?

Question 64

In each of the following cases, predict what will happen to the equilibrium price and quantity.

Question 65

How are the following events likely to affect equilibrium price and equilibrium quantity in the maple syrup market?

Question 66

Use the following to answer question:
Figure 2.13
(Figure 2.13) Use the figure to answer the next set of questions.

Question 67

Using well-labeled supply and demand curves, show how the following events will affect the market for the metal lead.

Question 68

Write out an equation for a downward-sloping linear demand curve. Next, graph this demand curve on a well-labeled diagram, showing the numerical values of the vertical and horizontal intercepts.

Question 69

In the market for good X, demand is Q^D = 6,000 - 0.8P and supply is Q^S = 0.4P - 300.

Question 70

The normal supply curve is Q^S = 12P - 20. What is the inverse supply curve?

Question 71

Suppose that the demand for a product is given by Q = 25 - 0.25P.

Question 72

Suppose that the demand and supply curves for a good are given by Q^D = 1,000/P and Q^S = 10P.

Question 73

Determine the equation for both normal and inverse demand equations using the information in the associated graph.

Question 74

The market for cod liver oil pills is characterized by the following demand and supply equations: Q^D = 100 - 4P and Q^S = -20 + 2P, where P is the price per bottle and Q is the quantity of bottles.

Question 75

The inverse supply equation for clay pots is P = 0.5Q ^S + 1; the inverse demand equation is P = -2Q^D + 15. Quantity is in thousands of units. What are the normal supply equation, the normal demand equation, and the resulting equilibrium price and quantity?

Question 76

Assume that the demand equation for exercise watches, such as the Fitbit, is Q^D = 2,200 - 15P and the supply equation is Q^S = 15P - 800. Calculate the equilibrium price and equilibrium quantity in this market.

Question 77

According to the nearby figure, what is the equation for the normal supply curve? Now assume that the price of raw materials for this product falls, leading suppliers to offer three additional units at every price. What is the equation for the new supply curve?

Question 78

Assume that the demand equation for exercise watches, such as the Fitbit, is Q^D = 2,200 - 15P and the supply equation is Q^S = 15P - 800. After a favorable study shows that using exercise watches significantly reduces users' weights, quantity demanded increases by 300 at every price. The new equilibrium price will be _____ and the new equilibrium quantity will be _____.

Question 79

According to political journalist Michael Kinsley, "The price of oil shoots up; we start using less; reduced demand sends the price down; we start using more; pretty soon it's shooting up again." Explain whether you agree or disagree with Kinsley's assessment of oil markets.

Question 80

In the market for cotton, the quantity demanded and quantity supplied are expressed mathematically as Q^D = 400 - 250P and Q^S = 250P - 100, where P is the price per pound of cotton.