Question 1

A price floor is the minimum price that consumers have to pay.

Accepted Answer

The answer of A price floor is the minimum price...

Question 2

If demand increases and supply decreases, then equilibrium price must decrease, but equilibrium quantity is indeterminate.

Accepted Answer

If demand increases and supply decreases, it leads to a shortage in the market, which causes the price to increase until a new equilibrium is established. Therefore, equilibrium price will increase instead of decrease. And the equilibrium quantity will decrease due to the decrease in supply.

Question 3

Assume that the supply curve for tomatoes is upward sloping. If the price per pound increases from $0.99 to $1.89, a greater quantity of tomatoes will be supplied to the market.

Accepted Answer

According to the law of supply, as the price of a good increases, the quantity supplied also increases. Therefore, an upward sloping supply curve indicates that an increase in price leads to an increase in quantity supplied.

Question 4

A rent control law, where tenants pay below-market rents, is a market restriction that may induce a decrease in the supply of rented apartments.

Accepted Answer

Rent control laws often lead to a decrease in the supply of rented apartments because landlords may find it less profitable to maintain or upgrade their properties, or they may convert their rental units into condos or other types of housing that are not subject to rent control. This can result in a shortage of affordable housing and longer waiting lists for available units.

Question 5

When a market is in surplus, there is pressure for the price to move upward.

Accepted Answer

When a market is in surplus, there is excess supply which puts pressure for sellers to lower their prices in order to clear their inventories. This means that the market price is more likely to move downward rather than upward.

Question 6

If more firms enter the telecommunications industry, we can expect the equilibrium price of telecom services to decrease and the equilibrium number of services to increase.

Accepted Answer

This is because more firms entering the industry will increase competition, driving prices down and the number of services up.

Question 7

The development of a low-cost synthetic fuel is expected to cause a decrease in the price of oil.

Accepted Answer

The development of a low-cost synthetic fuel would increase competition in the energy market, leading to a decrease in the price of oil as consumers have a more affordable and efficient alternative to gasoline.

Question 8

A supply curve slopes downward because of the law of supply.

Accepted Answer

The law of supply states that as the price of an item goes up, suppliers will attempt to maximize their profits by increasing the quantity supplied, leading to an upward-sloping supply curve, not downward.

Question 9

The market demand curve is derived by summing individual demand curves horizontally.

Accepted Answer

The market demand curve represents the total quantity demanded by all consumers in the market at each price level. It is derived by horizontally adding up the quantities demanded by each individual consumer at each price level.

Question 10

When the price ceiling on eggs is lifted, there is a shortage of eggs in the market.

Accepted Answer

When the price ceiling on eggs is lifted, it means that the government has removed any regulations preventing the price of eggs from rising above a certain level. This would incentivize egg suppliers to produce more eggs and enter the market, as they can now sell their eggs at a higher price. Therefore, there would not be a shortage of eggs in the market, but rather an increase in supply.

Question 11

The demand schedule shows that the price of a good and quantity demanded are directly related to each other.

Accepted Answer

A demand schedule typically shows that the price of a good and the quantity demanded are inversely related, meaning as the price decreases, the quantity demanded usually increases, and vice versa.

Question 12

The demand schedule is a price list for a fixed basket of consumer goods following a particular format.

Accepted Answer

A demand schedule is a table that shows the quantity of a good or service that consumers are willing and able to purchase at various prices, not a price list for a fixed basket of goods.

Question 13

Empirical evidence suggests that more digital cameras are being sold today than one year ago, and the selling price has decreased. The probable reason for this could have been an increase in supply.

Accepted Answer

The empirical evidence suggests an increase in supply as the probable reason for the combination of increased sales and decreased selling price. Therefore, the statement is true.

Question 14

A sharp increase in gasoline prices will cause the supply curve for trucking services to shift to the right.

Accepted Answer

A sharp increase in gasoline prices will increase the operating costs for trucking companies, leading to a decrease in supply as they may reduce their output or pass on the increased costs to consumers. Therefore, the supply curve for trucking services will shift to the left.

Question 15

A price control always benefits consumers.

Accepted Answer

Price control can have both positive and negative effects on consumers. While it can protect consumers from high prices, it can also lead to shortages, low quality goods, and reduced innovation. Additionally, it can cause market inefficiencies and ultimately harm consumers in the long term.

Question 16

The demand for luxurious goods are usually unaffected by an increase in income.

Accepted Answer

The statement is false. The demand for luxurious goods often increases with an increase in income, as people may have more disposable income and be willing to indulge in luxury items.

Question 17

According to the law of supply, if the price of calculators decrease, the supply of calculators will decrease, everything else held constant.

Accepted Answer

According to the law of supply, if the price of calculators decreases, the supply of calculators will increase, everything else held constant.

Question 18

A price ceiling imposed on a good that is below the equilibrium price will result in a shortage of that good.

Accepted Answer

This is because the price ceiling prevents the price from rising to the equilibrium level, meaning that the quantity demanded will exceed the quantity supplied. This creates a shortage as consumers want more of the good than producers are willing to supply at the lower price.

Question 19

A price floor does not benefit producers.

Accepted Answer

A price floor is a government-imposed minimum price, which means that producers cannot legally sell their goods below that price. This results in a higher price for consumers, which could decrease demand for the product and potentially harm the producer's sales. However, for those producers who are able to sell their goods at the higher price, a price floor can increase their revenue and profits.

Quiz 3: Markets, Demand and Supply, and the Price System