Question 1

All else constant, an increase in the number of buyers in the market for cell phone service would cause:

Accepted Answer

An increase in the number of buyers in the market for cell phone service would shift the demand curve to the right, resulting in an increase in both equilibrium price and quantity.

Question 2

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. All else constant, this would cause the:

Accepted Answer

If firms drop out of the market, the supply of Internet service will decrease. This will cause the equilibrium price to increase as consumers compete for the remaining supply, but the equilibrium quantity demanded will decrease as consumers are less willing to pay the higher price. Therefore, the equilibrium point will shift to a higher price and lower quantity.

Question 3

Assume an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Assume the price of large cars increases due to a shift in consumers' preferences toward large cars and away from smaller cars. What would reasonably be expected to happen to the equilibrium price and quantity of the firm's small cars?

Accepted Answer

Given the firm's factories are at full capacity and there's a shift in consumer preference towards large cars, the firm would likely allocate more resources to produce more large cars, reducing the production of small cars. This decrease in supply of small cars, with demand shifting away from them, would lead to both a decrease in equilibrium price and quantity.

Question 4

Assume wages paid by a firm to its workers decrease. What will be the reaction of consumers as the market moves to its new equilibrium?

Accepted Answer

The answer of Assume wages paid by a firm to...

Question 5

Assuming there is a surplus in the market for copper, if the market for copper is allowed to adjust, the ultimate result will be:

Accepted Answer

In a surplus, the quantity supplied exceeds the quantity demanded, leading to downward pressure on price. As the price decreases, the quantity demanded increases until the surplus is eliminated.

Question 6

As the price of milk increases, what happens at the original equilibrium in the market for cereal that signals market participants that the original equilibrium must change? Milk and cereal are complements.)

Accepted Answer

When the price of milk increases, demand for its complement, cereal, decreases because consumers are less likely to buy milk, thereby reducing their consumption of cereal as well. This decrease in demand for cereal, at the original equilibrium price, creates a surplus as the quantity supplied exceeds the quantity demanded.

Question 7

Which of the following statements is correct?

Accepted Answer

If price is above equilibrium, there is excess supply, and producers will lower their prices to attract buyers until demand and supply are equalized at the new equilibrium price. This will lead to a decrease in price and an increase in the quantity demanded.

Statement A is incorrect because changes in demand or supply can be caused by factors other than price, such as changes in consumer preferences or changes in technology.

Statement B is incorrect because a simultaneous decrease in demand and increase in supply will result in a decrease in equilibrium price and an uncertain effect on quantity.

Statement D is incorrect because an increase in supply will lead to a surplus or excess supply, not a shortage.

Question 8

Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W, where Px = the price of X, Py = the price of good Y, and W = Wage index for workers in industry X. According to this equation:

Accepted Answer

The negative coefficient of Py in the supply function indicates that as the price of good Y increases, the supply of good X decreases, suggesting that X and Y are substitutes.

Question 9

Assume there is an improvement in the technology used to produce Blu-ray disc players. What could be expected to happen to the equilibrium price and quantity in the market for Blu-ray disc players?

Accepted Answer

An improvement in technology would lead to a decrease in production costs for Blu-ray players, which would shift the supply curve to the right. This results in a new equilibrium point with a lower price and higher quantity of Blu-ray players being produced and sold. Therefore, C is the correct answer.

Question 10

All else constant, a large decrease in the number of people who want to own sport utility vehicles SUVs) because of their poor fuel efficiency could be expected to cause:

Accepted Answer

A large decrease in the demand for SUVs, which are known for poor fuel efficiency, would likely lead to a decrease in gasoline consumption. This reduced demand for gasoline could lead to a decrease in its equilibrium price, as less gasoline would be needed to meet the diminished demand.

Question 11

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. Which of the following best describes the effect of the reduction in the number of service providers and the subsequent adjustment of the market to the new equilibrium price and quantity?

Accepted Answer

When firms drop out of the market, supply decreases. This creates excess demand at the initial equilibrium price. To eliminate the excess demand, the price will rise, which will cause quantity demanded to decrease while quantity supplied will increase until a new equilibrium price and quantity are reached.

Question 12

Referring to the previous question, which of the following best describes the adjustment to the new market equilibrium?

Accepted Answer

When price rises, quantity demanded decreases and quantity supplied increases, leading to a new market equilibrium.

Question 13

Referring to the previous question, what will happen to the equilibrium price and quantity of cars?

Accepted Answer

The imposition of tariffs will increase the cost of imported cars, leading to a decrease in the quantity demanded and an increase in quantity supplied from domestic producers. This will cause a shortage of cars, resulting in an increase in equilibrium price and a decrease in equilibrium quantity.

Question 14

Referring to the previous question, all else constant, a 5 unit increase in the wage index would cause:

Accepted Answer

The answer of Referring to the previous question, all else...

Question 15

All else constant, what is the ultimate market reaction of suppliers to an increase in the incomes of consumers?

Accepted Answer

An increase in consumer incomes typically leads to an increase in demand for goods and services. In response, suppliers increase the quantity supplied to meet the higher demand, assuming prices rise as a result of the increased demand.

Question 16

Assume the income of consumers of good X a normal good) increases. What occurs at the initial equilibrium price for X that signals market participants that the equilibrium price must change?

Accepted Answer

An increase in income of consumers of a normal good leads to an increase in demand for the good. This increase in demand leads to a shortage in the market, as the initial equilibrium price is set at a level where the quantity demanded and supplied are equal. The shortage indicates to market participants that the equilibrium price must increase in order to balance demand and supply.

Question 17

Assume that in the market for plasma TVs there is a simultaneous increase in supply and an increase in the quantity demanded. The result will be:

Accepted Answer

The answer of Assume that in the market for plasma...

Question 18

As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of cereal? Milk and cereal are complements.)

Accepted Answer

When the price of milk increases, demand for its complement, cereal, would decrease because they are often consumed together. This decrease in demand for cereal would lead to a lower equilibrium price and quantity for cereal.

Question 19

Assume the auto market is initially in equilibrium with imports from Japan taking up a significant share of the market. Now assume a quota on imports of Japanese cars is established. What will occur at the initial equilibrium price to signal market participants regarding the change that has taken place?

Accepted Answer

A quota on imports of Japanese cars would decrease the supply of cars in the market. This decrease in supply would cause a shortage at the initial equilibrium price, leading to an increase in the price of cars. Therefore, Option D is correct. Option A is incorrect because a quota would decrease imports and decrease supply. Option B is incorrect because a decrease in demand would not result in a surplus. Option C is incorrect because a quota would decrease supply, not increase demand.

Question 20

Assume the Congress approves increased drilling for oil in Alaska to address the current energy shortage. People who are in favor of this policy argue that,ceteris paribus, this would cause:

Accepted Answer

Increased drilling would increase the supply of oil, leading to a lower equilibrium price and a higher equilibrium quantity, assuming demand remains constant.

Quiz 2: Demand, Supply, and Equilibrium Prices