Question 1

An equilibrium:

Accepted Answer

An equilibrium is a state where the demand for a product or service is equal to the supply of that product or service. In a competitive market, this state will continue indefinitely as long as exogenous factors remain unchanged. However, in reality, markets are often subject to various exogenous factors that can cause shifts in demand and supply or changes in other conditions, leading to a new equilibrium point. So, option B is the correct answer. An equilibrium is a state where demand and supply are perfectly balanced and there is no excess demand or supply. In this state, market forces will continue to operate and there will be no tendency for the price and quantity to change as long as exogenous factors (such as changes in technology or consumer preferences) remain unchanged. Therefore, option B is the correct answer. Option A is incorrect because not all markets necessarily reach equilibrium. Option C is incorrect because equilibrium is a meaningful concept in economics. Option D is incorrect because equilibrium is a lasting state.

Question 2

Movements along a demand curve caused by a change in price probably means that:

Accepted Answer

The answer of Movements along a demand curve caused by...

Question 3

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Which of the following statements is false?

Accepted Answer

A change in price does not cause a shift in the demand curve. Rather, a change in price leads to a movement along the existing demand curve, referred to as a change in quantity demanded. A shift in the demand curve is caused by a change in a non-price determinant of demand, such as consumer incomes or preferences. A change in price will cause a movement along the demand curve, not a shift in the demand curve itself. A shift in the demand curve would occur if a non-price factor influencing demand, such as consumer preferences or income, were to change.

Question 4

Suppose the equilibrium rent for apartments in New York City is $2,000 per month. If the city authorities declared effective tomorrow that rents would not be allowed to exceed $1,800 per month, what do you think would happen to the relationship between supply and demand for rental apartments in New York City?

Accepted Answer

If rents were not allowed to exceed $1,800 per month, landlords would not have as much incentive to build new apartments or maintain existing ones, since they would not be able to charge as much for them. This could lead to a shortage of rental units, as landlords might choose to convert their properties to other uses or simply not invest in them as much. In the long run, this could have a negative impact on the availability and quality of housing in the city. If the city authorities declare that rents cannot exceed $1,800 per month, landlords will have less incentive to build new rental units, which could potentially lead to a shortage of rental apartments. This would also mean that some landlords may choose to convert their rental properties into co-ops, which would further reduce the supply of rental units. Additionally, the lower rents may make it less profitable for landlords to maintain their properties, which could lead to a decline in the quality of rental housing available.

Question 5

Which of the following statements is true?

Accepted Answer

Exogenous changes can affect both demand and supply curves. For example, changes in government policy or sudden changes in consumer tastes can affect both the demand and supply curves. Endogenous changes, on the other hand, refer to changes that occur within the market such as changes in the price of a good, which can cause movements along the demand and supply curves. Exogenous factors such as changes in economic policy, natural disasters, or changes in technology can affect both demand and supply curves. This can lead to shifts in either or both curves, resulting in a change in the equilibrium price and quantity. Movement along a demand curve, on the other hand, usually implies a change in the price of the good itself and is associated with a change in quantity demanded.

Question 6

Another term for equilibrium would be:

Accepted Answer

Equilibrium refers to a state of balance, stability or harmony. Therefore, the best choice to describe equilibrium would be C. Option A, infinite supply, does not accurately reflect equilibrium as equilibrium implies a balance between supply and demand. Option B, insatiable wants, refers to a situation where demand exceeds supply, which is not reflective of equilibrium. Option D, scarcity, is the opposite of equilibrium as it refers to a situation where there is a shortage of supply relative to demand. Equilibrium refers to a state of balance or stability between supply and demand, where there is no shortage or surplus of goods or services. Therefore, the correct term to describe equilibrium is "a point of stability." Options A, B, and D do not accurately describe the concept of equilibrium.

Question 7

Currently, 100,000 units of a good are traded on the market. The government imposes a tax on producers that raises the unit cost of production of the good. This will:

Accepted Answer

The tax will increase the cost of production for producers, which will result in a decrease in the supply of the good. This will shift the supply curve to the left, leading to a decrease in the quantity traded. The tax on producers will raise their costs of production, leading to a decrease in supply as producers will not be willing to supply as much at a higher cost. This will shift the supply curve to the left.

Question 8

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I). Which of the following statements is true?

Accepted Answer

The answer of Suppose that we illustrate demand and supply...

Question 9

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Which of the following statements is false?

Accepted Answer

In the demand and supply model, price and quantity are the endogenous variables, not exogenous variables. Exogenous variables are factors outside of the model that can affect demand or supply, such as changes in government policy, technology, or consumer preferences. Changes in these exogenous variables will shift the demand and/or supply curves. On the other hand, changes in endogenous variables, such as price and quantity, will cause movements along the demand and/or supply curves. The equilibrium is represented as the intersection of supply and demand curves, and this point indicates the market-clearing price and quantity. In this representation, price and quantity are the endogenous variables, not the exogenous variables. Exogenous variables are factors that affect demand or supply but are not determined by the market, such as changes in taxes, technology, or government regulations. Endogenous variables are factors that are determined by the market, such as the price and quantity of goods and services bought and sold.

Question 10

Suppose the equilibrium price in a market is $5, and the government imposes a $4.50 price ceiling. This will:

Accepted Answer

A price ceiling below the equilibrium price will create excess demand, as quantity demanded will exceed quantity supplied at the new lower price. A price ceiling set below the equilibrium price will cause excess demand, meaning that the quantity demanded will exceed the quantity supplied. Consumers will want to buy more at the lower price, but producers are unable or unwilling to supply the quantity demanded. This can result in shortages, black markets, and inefficiencies in the allocation of goods and resources.

Question 11

Comparative statics:

Accepted Answer

Comparative statics involves examining how endogenous variables change as exogenous factors change. It is used to analyze the effects of changes in policy or market conditions on economic outcomes, assuming that all other factors remain constant. While exogenous variables may not remain constant indefinitely, this does not render comparative statics useless, as it can still provide valuable insights into short-term changes in economic behavior. Comparative statics examines how endogenous variables change as exogenous factors change. It does not examine how exogenous variables change as endogenous factors change (A). It also does not focus on comparing two separate markets at a single point in time (C) or render itself useless because exogenous variables can never be expected to remain constant for long (D).

Question 12

Identify the truthfulness of the following statements: I. Equilibrium analysis helps economists determine the market-clearing price.
II. Comparative statics help economists analyze how a change in an exogenous variable affects the level of a related endogenous variable in an economic model.

Accepted Answer

Both statements I and II are true. Equilibrium analysis is used to determine the market-clearing price in a market where supply and demand are equal. Comparative statics, on the other hand, are used to analyze the effects of changes in exogenous variables on the level of endogenous variables in an economic model. Both statements are true. Equilibrium analysis is used to determine the price at which the quantity demanded equals the quantity supplied, while comparative statics allows us to analyze how changes in exogenous variables affect endogenous variables in an economic model.

Question 13

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I). Which of the following statements is true?

Accepted Answer

Income is considered an exogenous variable in this context, meaning it is not depicted on either axis but can influence the position of the demand curve. Changes in income can lead to shifts in the demand curve, as it affects consumers' purchasing power, but it does not directly affect the supply curve nor is it represented by a movement along the demand curve.

Question 14

A good example of marginal reasoning would be:

Accepted Answer

Marginal reasoning involves analyzing the benefits and costs of making an incremental change. In this example, the analysis focuses on the additional sales that can be generated from spending an extra dollar on advertising, which is an incremental change. Marginal reasoning involves analyzing the potential benefits and costs of an additional unit. In this case, the additional dollar spent on advertising would result in a marginal increase in sales, making it a good example of marginal reasoning. The other choices are not necessarily examples of marginal reasoning but may involve other types of decision-making analysis.

Question 15

What term in microeconomics tells us how a dependent variable changes as a result of adding one unit of an independent variable?

Accepted Answer

The term that describes how a dependent variable changes as a result of adding one unit of an independent variable is known as the marginal impact. Marginal impact refers to the change in a dependent variable that results from adding one unit of an independent variable.

Question 16

If we were to build a model measuring the supply of corn, which of the following could be an example of an exogenous variable in the model?

Accepted Answer

The quantity of rain is an external factor affecting the supply of corn, and therefore, can be considered an exogenous variable in the model. The other choices, such as the price of corn, quantity supplied of corn, and demand for corn, are all endogenous variables that are directly related to the supply of corn. The quantity of rain would be an exogenous variable because it is outside of the control of corn producers and affects the supply of corn. The price of corn, quantity supplied of corn, and demand for corn would all be endogenous variables because they are directly related to the supply of corn.

Question 17

Currently, 100,000 units of a good are traded on a market. The government imposes a limit of a maximum of 50,000 units that may be traded on the market. This will:

Accepted Answer

The answer of Currently, 100,000 units of a good are...

Question 18

Identify the truthfulness of the following statements: I. Marginal analysis can explain why you would always choose to eat Chinese food rather than pizza.
II. Marginal analysis can explain the incremental impact of an increase in total cost when one more unit of output is produced.

Accepted Answer

Marginal analysis does not determine absolute preferences (like always choosing Chinese food over pizza) but rather examines the benefits of incremental changes, making statement I false. Statement II is true as marginal analysis is indeed used to assess the impact of producing one additional unit of output, including changes in total cost.

Question 19

Suppose the equilibrium price in a market is $5, and the government imposes a $4.50 price floor on the market. This will:

Accepted Answer

The answer of Suppose the equilibrium price in a market...

Question 20

Suppose that market demand for a good slopes downward and market supply slopes upward. Equilibrium price is now $10 and 500,000 units of the good are traded at this price. Suppose now that the cost at which each unit of the good is produced falls. What is the likely effect of this change on the market equilibrium?

Accepted Answer

A decrease in production costs shifts the supply curve to the right, leading to a lower equilibrium price if demand remains constant.

Quiz 1: Analyzing Economic Problems

An equilibrium:

Movements along a demand curve caused by a change in price probably means that:

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Which of the following statements is false?

Which of the following statements is true?

Another term for equilibrium would be:

Currently, 100,000 units of a good are traded on the market. The government imposes a tax on producers that raises the unit cost of production of the good. This will:

Suppose that we illustrate demand and supply with quantity on the horizontal axis and income on the vertical axis. Let demand be a function of price and income, Qd (P, I) . Which of the following statements is true?

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Which of the following statements is false?

Suppose the equilibrium price in a market is $5, and the government imposes a $4.50 price ceiling. This will:

Comparative statics:

Identify the truthfulness of the following statements: I. Equilibrium analysis helps economists determine the market-clearing price. II. Comparative statics help economists analyze how a change in an exogenous variable affects the level of a related endogenous variable in an economic model.

Suppose that we illustrate demand and supply with quantity on the horizontal axis and price on the vertical axis. Let demand be a function of price and income, Qd (P, I) . Which of the following statements is true?

A good example of marginal reasoning would be:

What term in microeconomics tells us how a dependent variable changes as a result of adding one unit of an independent variable?

If we were to build a model measuring the supply of corn, which of the following could be an example of an exogenous variable in the model?

Currently, 100,000 units of a good are traded on a market. The government imposes a limit of a maximum of 50,000 units that may be traded on the market. This will:

Identify the truthfulness of the following statements: I. Marginal analysis can explain why you would always choose to eat Chinese food rather than pizza. II. Marginal analysis can explain the incremental impact of an increase in total cost when one more unit of output is produced.

Suppose the equilibrium price in a market is $5, and the government imposes a $4.50 price floor on the market. This will: