Question 1

"Because apples and oranges are substitutes, an increase in the price of oranges will cause the demand for apples to increase.This initial shift in demand for apples results in a higher price for apples; this higher price will cause the demand curve for apples to shift to the right." Which of the following correctly comments on this statement?
A)The statement will be true if consumer tastes for apples and oranges do not change.
B)The statement is false because a change in the price of apples would not change the demand for apples.
C)The statement is false because oranges are inferior goods; apples are normal goods.
D)The statement is false because one cannot assume that apples and oranges are substitutes for all consumers.

Accepted Answer

The answer of "Because apples and oranges are substitutes, an...

Question 2

Figure 3.8
 
-Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₁ and S₁ (point A). If worms eat half the apple crop how will the market equilibrium point change?
A)The equilibrium point will move from A to B.
B)The equilibrium point will move from A to C.
C)There will be no change in the equilibrium point.
D)The equilibrium point will move from A to E.

Accepted Answer

If worms eat half the apple crop, the supply of apples decreases, shifting the supply curve leftward from S₁ to S₂. This results in a new equilibrium at a higher price and lower quantity, moving the equilibrium point from A to B.

Question 3

What would happen in the market for laser eye surgery if provincial health plans started to cover a portion of the price of voluntary procedures?
A)Demand will increase, but this will not shift the supply curve.
B)Supply will increase, but this will not shift the demand curve.
C)Demand and supply will both increase.
D)Demand will increase and supply will decrease.

Accepted Answer

If provincial health plans started to cover a portion of the price of laser eye surgery, the cost to consumers would decrease, making the procedure more affordable. This would likely increase demand for the procedure, but it would not necessarily affect the supply of laser eye surgery. The amount of supply available will depend on the number of providers offering the procedure and their willingness to offer it at the reduced price. Therefore, option A is the correct answer.

Question 4

Figure 3.8
 
-Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₁ and S₁ (point A). If the price of oranges, a substitute for apples, decreases and the wages of apple workers increase, how will the equilibrium point change?
A)The equilibrium point will move from A to E.
B)The equilibrium point will move from A to B.
C)The equilibrium point will move from A to C.
D)The equilibrium will first move from A to B, then return to A.

Accepted Answer

The answer of Figure 3.8
 
-Refer to Figure 3.8.The graph...

Question 5

Figure 3.8
 
-Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₁ and S₁ (point A). If there is an increase in the wages of apple workers and an increase in the price of oranges, a substitute for apples, the equilibrium could move to which point?
A)none of the points shown
B)B
C)C
D)E

Accepted Answer

The answer of Figure 3.8
 
-Refer to Figure 3.8.The graph...

Question 6

If provinces decide to cover part of the price of voluntary laser eye surgery and more doctors decide to enter the field of laser eye surgery, what will happen in the market for laser eye surgery as a result of these two factors?
A)Demand will increase, but these two factors will not shift the supply curve.
B)Supply will increase, but these two factors will not shift the demand curve.
C)Demand and supply will both increase.
D)Demand will increase and supply will decrease.

Accepted Answer

When provinces cover part of the price of voluntary laser eye surgery, it makes it more affordable for consumers, which increases demand. Additionally, if more doctors enter the field of laser eye surgery, there will be more supply available. Therefore, both demand and supply will increase, leading to higher overall market activity.

Question 7

Select the phrase that correctly completes the following statement."A positive change in technology caused an increase in the supply of flat-screen televisions.As a result ________."
A)the price of flat-screen televisions decreased and the demand for flat-screen televisions increased
B)the equilibrium quantity of flat-screen televisions decreased
C)the price of flat-screen televisions decreased and the quantity demanded of flat-screen televisions increased
D)the price of flat-screen televisions decreased. The lower price caused the supply of flat-screen televisions to decrease

Accepted Answer

An increase in supply would result in a decrease in price (as stated in option C) and an increase in quantity demanded (not stated in option A). Option B is incorrect as an increase in supply should lead to an increase in equilibrium quantity, not a decrease. Option D is incorrect as a decrease in price would not cause a decrease in supply, but rather an increase in quantity supplied.

Question 8

Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?
A)a decrease in demand greater than the increase in supply
B)an increase in supply
C)an increase in supply and an increase in demand greater than the increase in supply
D)a decrease in demand and a decrease in supply

Accepted Answer

An increase in supply would naturally decrease the equilibrium price of salmon, as there would be more available product to meet demand. This increase in supply would then lead to an increase in the equilibrium quantity of salmon, as there would be more product available to consumers at a lower price point.

Question 9

LCD displays were first researched in the 1960s.In 1999 Corning Inc.developed a new manufacturing process that allowed for the production of thin, clear glass.How did this change in technology affect the market for LCD TVs?
A)The new technology caused an increase in the supply of LCD TVs and a decrease in the price of LCD TVs.
B)The new technology caused an increase in the supply of LCD TVs and an increase in the price of LCD TVs.
C)The new technology caused an decrease in the demand for LCD TVs.
D)The new technology caused an increase in the quantity of LCD TVs players supplied.

Accepted Answer

The new manufacturing process allowed for the production of thinner and clearer glass, which reduced the cost of producing LCD displays. This increase in supply led to a decrease in the price of LCD TVs, making them more affordable for consumers. Therefore, the correct option is A.

Question 10

"The price of compact fluorescent light bulbs fell because of improvements in production technology.As a result, the demand for incandescent light bulbs decreased.This caused the price of incandescent light bulbs to fall; as the price of incandescent light bulbs fell the demand for incandescent light bulbs decreased even further." Evaluate this statement.
A)The statement is false. A decrease in the price of compact fluorescent light bulbs would decrease the demand for incandescent light bulbs, but a decrease in the price of incandescent light bulbs would not cause the demand for incandescent light bulbs to decrease.
B)The statement is false because the demand for incandescent light bulbs would increase as the price of compact fluorescent light bulbs fell.
C)The statement is false because compact fluorescent light bulbs producers would not reduce their prices as a result of improvements in technology; doing so would reduce their profits.
D)The statement is false because it confuses the law of demand with the law of supply.

Accepted Answer

The answer of "The price of compact fluorescent light bulbs...

Question 11

Figure 3.7
 
-Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for used clothing, an inferior good.Which panel describes what happens in this market as a result of a decrease in income?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)

Accepted Answer

The answer of Figure 3.7
 
-Refer to Figure 3.7.Assume that...

Question 12

A decrease in the equilibrium price for a product will result
A)when the quantity demanded for the product exceeds the quantity supplied.
B)when there is a decrease in supply and a decrease in demand for the product.
C)when there is an increase in supply and a decrease in demand for the product.
D)when there is a decrease in demand and a decrease in the number of firms producing the product.

Accepted Answer

A decrease in equilibrium price occurs when there is an increase in supply and a decrease in demand for the product. This results in a surplus, where there is more supply than demand, and sellers must lower the price in order to sell their product. Option A is not correct, as when quantity demanded exceeds quantity supplied, prices generally rise. Option B is not correct, as when both supply and demand decrease, the equilibrium price can either increase, decrease, or remain unchanged depending on the magnitude of the changes. Option D is not correct as a decrease in the number of firms producing the product may increase the equilibrium price if the remaining firms can charge higher prices due to decreased competition.

Question 13

Hurricane Juan hit Halifax in 2003.The storm did over $300 million in damage.In the effort to repair the damage done by the storm, the prices of basic building materials and contractors increased dramatically.Many residents complained of profiteering and price gouging by contractors and home improvement stores.Which of the following offers the best explanation of the price increases people were seeing?
A)The hurricane reduced the number of suppliers of building materials.
B)The hurricane created an artificial shortage of building materials.
C)The hurricane caused an increase in the demand for building materials.
D)There was a reduction in supply as firms shipped plywood and other materials to locations not affected by the storm.

Accepted Answer

The hurricane caused widespread damage, leading to a significant increase in the demand for building materials for repairs and reconstruction, which in turn drove up prices.

Question 14

The demand for lobster is higher at Christmas than in February.If the equilibrium price of lobster is lower at Christmas than in February then
A)the supply of lobster is lower in February than at Christmas.
B)consumers' tastes for lobster are greater in February than at Christmas.
C)there is a surplus of lobster at Christmas and a shortage of lobster in February.
D)there are more substitutes for lobster at Christmas than there are in February.

Accepted Answer

If the demand for lobster is higher at Christmas than in February, and the equilibrium price of lobster is lower at Christmas than in February, it indicates that there is a higher supply of lobster at Christmas. This could be because lobster is a seasonal product, and more are available during the Christmas season. Additionally, there could be other factors such as the demand for lobster being higher in other countries during February, leading to a higher price. Nevertheless, the most likely reason for the scenario described in the question is that there is a higher supply of lobster at Christmas than in February.

Question 15

Figure 3.7
 
-Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements.What panel describes what happens in this market when the price of steak rises?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)

Accepted Answer

The answer of Figure 3.7
 
-Refer to Figure 3.7.Assume that...

Question 16

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve.As a result
A)both the equilibrium price and quantity of MP3 players will increase.
B)the equilibrium price of MP3 players will increase; the equilibrium quantity may increase or decrease.
C)the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will increase.
D)the equilibrium price of MP3 players will decrease; the equilibrium quantity may increase or decrease.

Accepted Answer

The answer of Assume that both the demand curve and...

Question 17

Figure 3.8
 
-Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₂ and S₂ (point E). Which of the following changes would cause the equilibrium to change to point A?
A)A positive change in the technology used to produce apples and decrease in the price of oranges, a substitute for apples.
B)An increase in the wages of apple workers and a decrease in the price of oranges, a substitute for apples.
C)An increase in the number of apple producers and a decrease in the number of apple trees as a result of disease.
D)A decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples.

Accepted Answer

According to the graph, a decrease in the wages of apple workers and an increase in the price of oranges, a substitute for apples, would cause a leftward shift in the supply curve from S2 to S1. This would result in a new equilibrium point at A where the quantity of apples decreases and the price of apples increases.

Question 18

Figure 3.7
 
-Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for rice.What happens in this market if buyers expect the price of rice to fall?
A)Panel (a)
B)Panel (b)
C)Panel (c)
D)Panel (d)

Accepted Answer

The answer of Figure 3.7
 
-Refer to Figure 3.7.Assume that...

Question 19

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall.Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions)?
A)The supply of blu-ray players would increase and the equilibrium price of blu-ray players would decrease.
B)The demand for blu-ray players would increase and the equilibrium price of blu-ray players would increase.
C)The demand for blu-ray players would decrease because consumers could afford to buy fewer LCD televisions and blu-ray players.
D)The demand for blu-ray players would increase and the equilibrium price of blu-ray players would decrease.

Accepted Answer

The answer of Positive technological change in the production of...

Question 20

Which of the following statements is true?
A)An increase in demand causes a change in equilibrium price; the change in price does not cause a further change in demand or supply.
B)A decrease in supply causes equilibrium price to rise; the increase in price then results in a decrease in demand.
C)If both demand and supply increase there must be an increase in equilibrium price; equilibrium quantity may either increase or decrease.
D)If demand decreases and supply increases one cannot determine if equilibrium price will increase or decrease without knowing which change is greater.

Accepted Answer

According to the law of demand, an increase in demand leads to an increase in equilibrium price and quantity. There is no direct causal relationship between changes in price and further changes in demand or supply.

Quiz 3: Where Prices Come From: the Interaction of Demand and Supply

Figure 3.8 -Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₁ and S₁ (point A) . If worms eat half the apple crop how will the market equilibrium point change?

What would happen in the market for laser eye surgery if provincial health plans started to cover a portion of the price of voluntary procedures?

If provinces decide to cover part of the price of voluntary laser eye surgery and more doctors decide to enter the field of laser eye surgery, what will happen in the market for laser eye surgery as a result of these two factors?

Select the phrase that correctly completes the following statement."A positive change in technology caused an increase in the supply of flat-screen televisions.As a result ________."

Which of the following would cause a decrease in the equilibrium price and an increase in the equilibrium quantity of salmon?

LCD displays were first researched in the 1960s.In 1999 Corning Inc.developed a new manufacturing process that allowed for the production of thin, clear glass.How did this change in technology affect the market for LCD TVs?

Figure 3.7 -Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for used clothing, an inferior good.Which panel describes what happens in this market as a result of a decrease in income?

A decrease in the equilibrium price for a product will result

The demand for lobster is higher at Christmas than in February.If the equilibrium price of lobster is lower at Christmas than in February then

Figure 3.7 -Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements.What panel describes what happens in this market when the price of steak rises?

Assume that both the demand curve and the supply curve for MP3 players shift to the right but the demand curve shifts more than the supply curve.As a result

Figure 3.8 -Refer to Figure 3.8.The graph in this figure illustrates an initial competitive equilibrium in the market for apples at the intersection of D₂ and S₂ (point E) . Which of the following changes would cause the equilibrium to change to point A?

Figure 3.7 -Refer to Figure 3.7.Assume that the graphs in this figure represent the demand and supply curves for rice.What happens in this market if buyers expect the price of rice to fall?

Positive technological change in the production of LCD televisions caused the price of LCD televisions to fall.Holding everything else constant, how would this affect the market for Blu-ray players (a complement to LCD televisions) ?

Which of the following statements is true?