Question 1

Suppose the market for gasoline is in equilibrium. You have heard that the price of crude oil is falling because of new oil discoveries. You are also aware that the number of car and truck drivers is steadily rising. Knowing this, you predict that the price of gasoline will _____ and the quantity of gasoline bought and sold will _____.

Accepted Answer

The decrease in the price of crude oil may lead to a decrease in the price of gasoline, which could potentially lead to an increase in the quantity of gasoline bought and sold. However, the steady increase in the number of car and truck drivers would increase the demand for gasoline, which would result in an increase in the price of gasoline and an increase in the quantity of gasoline bought and sold. Therefore, the price of gasoline may either rise or fall, but the quantity of gasoline bought and sold will mostly likely rise.

Question 2

A recent news story reported that the Organization of Petroleum Exporting Countries is expected to decrease the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of vacation travel. What would be the combined effect of these two events on the summer market for gasoline?

Accepted Answer

The decrease in oil supply by OPEC and the increased demand during summer would lead to an increase in gasoline prices due to the higher demand and lower supply. However, the change in quantity is unpredictable because it depends on the extent of the supply decrease and demand increase, as well as how consumers and other producers respond to the price change.

Question 3

An ambiguous change in price and a decrease in quantity are most likely caused by:

Accepted Answer

An ambiguous change in price means that we cannot determine whether the price has increased or decreased, while a decrease in quantity means that there is less of the good being produced and/or consumed. This is consistent with a shift to the left in supply, as producers are willing and able to supply less of the good at any given price. A shift to the left in demand also results in a decrease in quantity, as consumers are willing and able to buy less of the good at any given price. Therefore, the only option that includes a shift to the left in both supply and demand is option B.

Question 4

It is certain that the equilibrium price will rise when the supply curve shifts to the _____ and the demand curve shifts to the _____.

Accepted Answer

When the supply curve shifts to the left, there is a decrease in supply resulting in a higher equilibrium price. When the demand curve shifts to the right, there is an increase in demand resulting in a higher equilibrium price. Therefore, the only option where both supply and demand curves shift in a way that results in a higher equilibrium price is D, left shift in supply and right shift in demand curve.

Question 5

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

Accepted Answer

When supply increases, it puts downward pressure on price. When demand decreases, it puts further downward pressure on price. Therefore, the price will decrease, but whether quantity increases, decreases, or stays the same depends on the magnitude of the changes in supply and demand.

Question 6

The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that:

Accepted Answer

The successful advertising campaign to encourage milk drinking will increase demand, causing the equilibrium quantity to rise. However, the entry of more milk producers will increase supply, which could either cause the equilibrium price to fall or remain the same, depending on the magnitude of the increase in supply. Therefore, we cannot determine how the equilibrium price will be affected.

Question 7

Customers used to pay inside before pumping gas. When gas stations introduced paying at the pump, thus decreasing production costs, there was a shift to the _____ in the _____ curve and _____ pressure on gas prices _____.

Accepted Answer

When gas stations introduced paying at the pump, it lowered production costs and increased the efficiency of the supply chain. As a result, the supply curve shifted to the right, meaning that there was an increase in available gas supply. This decrease in production costs and increase in supply lead to a decrease in pressure on gas prices, as there was less demand for increased prices due to a surplus of supply.

Question 8

If the United States increases tariffs on imports of lumber from Canada (which raises the price of lumber in the United States), the equilibrium price of new homes in the United States will _____ and the equilibrium quantity of new homes in the United States will _____.

Accepted Answer

When the United States increases tariffs on imports of lumber from Canada, the price of lumber within the United States will increase. As a result, the cost of producing new homes in the U.S. will increase. With higher production costs, builders will supply fewer new homes to the market, which will cause the equilibrium quantity of new homes in the U.S. to decrease. Consumers will face higher prices for new homes and some may choose to look for alternatives like existing homes or renting, which will cause the equilibrium price of new homes in the U.S. to increase.

Question 9

Consider the market for iPods. What happens if a fantastic new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by pirates and sunk?

Accepted Answer

The development of a fantastic new alternative MP3 player will increase competition in the market, which will likely lead to a decrease in demand for iPods. On the other hand, the pirate attack and sinking of the shipment of iPods will decrease the supply of iPods. The net effect on price and quantity is uncertain, but if the decrease in supply is greater than the decrease in demand, then price will increase and quantity will decrease. However, if the decrease in demand is greater than the decrease in supply, then price will decrease and quantity will decrease. Therefore, the change in price is indeterminate, but quantity is likely to decrease.

Question 10

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium price of digital cameras _____ and the equilibrium quantity _____.

Accepted Answer

The answer of The cost of sensors used in making...

Question 11

Suppose the local real estate market is in equilibrium. A recession causes local household incomes to decline. At the same time, construction of a large subdivision of new homes has just been completed. Given these two changes and assuming that real estate is a normal good, we can predict that the price of real estate will _____ and the quantity of real estate bought and sold will _____.

Accepted Answer

A decline in household incomes will likely lead to a decrease in demand for real estate, putting downward pressure on prices. However, the completion of a large subdivision of new homes will increase the supply of real estate, putting downward pressure on prices as well. The effect on quantity will depend on the magnitude of the changes in demand and supply, so it could either rise or fall. Therefore, choice C is the best option.

Question 12

It is certain that the equilibrium quantity will fall when:

Accepted Answer

The answer of It is certain that the equilibrium quantity...

Question 13

Suppose that more police and security workers become aware that wearing bulletproof vests can protect them from injury and decide to start wearing bulletproof vests. At the same time, the price of ceramics used to produce the vests falls. The equilibrium price of bulletproof vests _____ and the equilibrium quantity produced _____.

Accepted Answer

With more police and security workers wearing bulletproof vests, the demand for vests will increase. At the same time, the fall in price of ceramics used to produce vests will lower the cost of production, which will increase the supply of vests. Hence, both the demand and supply will increase, resulting in an increase in equilibrium quantity produced. However, the effect on equilibrium price is ambiguous because the increase in demand and supply may offset each other or not depending on the magnitude of change in each.

Question 14

It is certain that the equilibrium price will fall when:

Accepted Answer

When the supply curve shifts to the right and the demand curve shifts to the left, quantity supplied will increase but quantity demanded will decrease. This will result in a surplus, and sellers will have to lower the price to encourage buyers to purchase the excess supply. Therefore, the equilibrium price will fall.

Question 15

An increase in demand and a decrease in supply will lead to _____ in equilibrium quantity and _____ in equilibrium price.

Accepted Answer

The answer of An increase in demand and a decrease...

Question 16

In the local market for coffee, a normal good, the price will _____ and the quantity will _____ if new coffee shops open and consumers' incomes decrease because of a recession.

Accepted Answer

With more coffee shops, the competition will increase, forcing prices down. Additionally, with a recession and decreased incomes, consumers will likely reduce their coffee consumption, resulting in a decrease in quantity demanded.

Question 17

A decrease in demand and a decrease in supply will lead to _____ in equilibrium quantity and _____ in equilibrium price.

Accepted Answer

The answer of A decrease in demand and a decrease...

Question 18

An increase in the price and an ambiguous change in quantity is most likely caused by:

Accepted Answer

The answer of An increase in the price and an...

Question 19

Consider the market for corn. What happens if there is an increased demand for corn tortillas and at the same time a new corn seed becomes available that dramatically increases the yield per acre?

Accepted Answer

The increased demand for corn tortillas would result in an increase in the quantity demanded of corn, leading to an increase in price. However, the availability of a new corn seed that dramatically increases yield per acre would increase the quantity supplied of corn, leading to a decrease in price. The net effect on price would be indeterminate, but the quantity of corn exchanged would definitely increase. Thus, the answer is C, with the change in price being indeterminate, but the quantity increasing.

Question 20

Many public utilities burn oil to generate electricity. If the price of oil increases, we expect a shift to the _____ in the _____ curve for _____ and a _____ price for electricity

Accepted Answer

If the price of oil increases, the cost of production for public utilities also increases. This would cause a leftward shift in the supply curve for electricity, resulting in a higher price for electricity. Choice A is incorrect as a rightward shift in the supply curve would result in a higher quantity of electricity supplied and a lower price. Choice C is incorrect as a rightward shift in the demand curve for oil would result in a higher price for oil. Choice D is incorrect as a leftward shift in the demand curve for oil would also result in a lower price for oil.

Quiz 3: Supply and Demand

An ambiguous change in price and a decrease in quantity are most likely caused by:

It is certain that the equilibrium price will rise when the supply curve shifts to the _ and the demand curve shifts to the _.

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that:

Customers used to pay inside before pumping gas. When gas stations introduced paying at the pump, thus decreasing production costs, there was a shift to the ___ in the _ curve and _ pressure on gas prices ___.

If the United States increases tariffs on imports of lumber from Canada (which raises the price of lumber in the United States) , the equilibrium price of new homes in the United States will _ and the equilibrium quantity of new homes in the United States will _.

Consider the market for iPods. What happens if a fantastic new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by pirates and sunk?

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium price of digital cameras _ and the equilibrium quantity _.

It is certain that the equilibrium quantity will fall when:

It is certain that the equilibrium price will fall when:

An increase in demand and a decrease in supply will lead to _ in equilibrium quantity and _ in equilibrium price.

In the local market for coffee, a normal good, the price will _ and the quantity will _ if new coffee shops open and consumers' incomes decrease because of a recession.

A decrease in demand and a decrease in supply will lead to _ in equilibrium quantity and _ in equilibrium price.

An increase in the price and an ambiguous change in quantity is most likely caused by:

Consider the market for corn. What happens if there is an increased demand for corn tortillas and at the same time a new corn seed becomes available that dramatically increases the yield per acre?

Many public utilities burn oil to generate electricity. If the price of oil increases, we expect a shift to the ___ in the _ curve for _ and a ___ price for electricity

Quiz 3: Supply and Demand

An ambiguous change in price and a decrease in quantity are most likely caused by:

It is certain that the equilibrium price will rise when the supply curve shifts to the _____ and the demand curve shifts to the _____.

Suppose that supply increases and demand decreases. What is the most likely effect on price and quantity?

The market for milk is initially in equilibrium. Milk producers successfully advertise to encourage milk drinking. At the same time, more milk producers enter the market. Standard demand and supply analysis tells us that:

Customers used to pay inside before pumping gas. When gas stations introduced paying at the pump, thus decreasing production costs, there was a shift to the _____ in the _____ curve and _____ pressure on gas prices _____.

If the United States increases tariffs on imports of lumber from Canada (which raises the price of lumber in the United States) , the equilibrium price of new homes in the United States will _____ and the equilibrium quantity of new homes in the United States will _____.

Consider the market for iPods. What happens if a fantastic new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by pirates and sunk?

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium price of digital cameras _____ and the equilibrium quantity _____.

It is certain that the equilibrium quantity will fall when:

It is certain that the equilibrium price will fall when:

An increase in demand and a decrease in supply will lead to _____ in equilibrium quantity and _____ in equilibrium price.

In the local market for coffee, a normal good, the price will _____ and the quantity will _____ if new coffee shops open and consumers' incomes decrease because of a recession.

A decrease in demand and a decrease in supply will lead to _____ in equilibrium quantity and _____ in equilibrium price.

An increase in the price and an ambiguous change in quantity is most likely caused by:

Consider the market for corn. What happens if there is an increased demand for corn tortillas and at the same time a new corn seed becomes available that dramatically increases the yield per acre?

Many public utilities burn oil to generate electricity. If the price of oil increases, we expect a shift to the _____ in the _____ curve for _____ and a _____ price for electricity

It is certain that the equilibrium price will rise when the supply curve shifts to the _ and the demand curve shifts to the _.

Customers used to pay inside before pumping gas. When gas stations introduced paying at the pump, thus decreasing production costs, there was a shift to the ___ in the _ curve and _ pressure on gas prices ___.

If the United States increases tariffs on imports of lumber from Canada (which raises the price of lumber in the United States) , the equilibrium price of new homes in the United States will _ and the equilibrium quantity of new homes in the United States will _.

The cost of sensors used in making digital cameras falls, while a successful ad campaign makes digital cameras more fashionable. As a result, the equilibrium price of digital cameras _ and the equilibrium quantity _.

An increase in demand and a decrease in supply will lead to _ in equilibrium quantity and _ in equilibrium price.

In the local market for coffee, a normal good, the price will _ and the quantity will _ if new coffee shops open and consumers' incomes decrease because of a recession.

A decrease in demand and a decrease in supply will lead to _ in equilibrium quantity and _ in equilibrium price.

Many public utilities burn oil to generate electricity. If the price of oil increases, we expect a shift to the ___ in the _ curve for _ and a ___ price for electricity