Question 1

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts fell,the price of jelly (a complementary good) fell,more firms decided to produce peanut butter,and health officials announced that eating peanut butter was bad for you

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Question 2

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up,the price of jelly (a complementary good) increased,fewer firms decided to produce peanut butter,and health officials announced that eating peanut butter was good for you

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Question 3

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts fell,the price of jelly (a complementary good) fell,more firms decided to produce peanut butter,and health officials announced that eating peanut butter was good for you

Accepted Answer

A fall in the price of peanuts will increase the supply of peanut butter, which will cause the equilibrium price to fall. A fall in the price of complementary good jelly will increase the demand for peanut butter, which will cause the equilibrium price and quantity to rise. An increase in producers of peanut butter will increase the supply, causing the equilibrium price to fall and the quantity to rise. Finally, the announcement that eating peanut butter is healthy will increase the demand for peanut butter, causing the equilibrium price and quantity to rise. Overall, these effects will lead to a bigger increase in quantity than the decrease in price, so the equilibrium quantity will rise and the price effect is ambiguous. Thus, the best choice is D.

Question 4

Sugar is a normal good.You observe that both the equilibrium price and quantity of sugar has fallen over time.Which of the following would be most consistent with this observation

Accepted Answer

If consumer tastes have changed and they prefer sugar less than before, this would lead to a decrease in the demand for sugar, causing both the equilibrium price and quantity to fall. Option A is not consistent with the observation, as an increase in income would lead to a higher demand for sugar and an improvement in technology would likely decrease the cost of production, leading to a lower price and higher quantity. Option B is not directly related to the market for sugar, so it cannot explain the change in equilibrium. Option D is incorrect because a positively sloped demand curve would mean that as the price of sugar decreases, the quantity demanded also decreases, which is opposite to what is observed.

Question 5

Sugar is a normal good.You observe that both the equilibrium price and quantity of sugar have risen over time.Which of the following would be most consistent with this observation

Accepted Answer

The increase in the price of artificial sweetener (a substitute for sugar) would likely increase the demand for sugar, leading to a higher equilibrium price and quantity. The fall in the price of coffee (a complement to sugar) could also increase the demand for sugar, further supporting the observed changes.

Question 6

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises,the price of steel rises,public transportation becomes cheaper and more comfortable,and auto workers negotiate higher wages

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Question 7

New cars are normal goods.What will happen to the equilibrium price of new cars if the price of gasoline rises,the price of steel falls,public transportation becomes cheaper and more comfortable,auto workers accept lower wages,and automobile insurance becomes more expensive

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Question 8

New oak tables are normal goods.What will happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises,the price of oak wood rises,more buyers enter the market for oak tables,and the price of wood saws increased

Accepted Answer

The rise in the price of maple tables and more buyers entering the market increase demand for oak tables, pushing the price up. The rise in the price of oak wood and wood saws increases production costs, reducing supply, which also pushes the price up. The effects on quantity are ambiguous due to opposing demand and supply shifts.

Question 9

New oak tables are normal goods.What will happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises,the price of oak wood rises,some buyers exit the market for oak tables,and the price of wood saws increased

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Question 10

Smart phones are normal goods.What will happen to the equilibrium price and quantity of smart phones if phone plans become cheaper,more firms start producing smart phones,and
smart phone users experience an increase in income

Accepted Answer

Cheaper phone plans and an increase in income of smart phone users will increase the demand for smart phones, leading to an increase in quantity demanded and equilibrium quantity. The entry of more firms will increase the supply of smart phones, leading to an increase in equilibrium quantity. The combined effect will be an increase in equilibrium quantity and an ambiguous effect on price, as the increase in demand could offset the increase in supply.

Question 11

Smart phones are normal goods.What will happen to the equilibrium price and quantity of smart phones if phone plans become more expensive,fewer firms produce smart phones,and smart phone users experience a decrease in income

Accepted Answer

If phone plans become more expensive and smart phone users experience a decrease in income, demand for smart phones will decrease, causing a leftward shift of the demand curve. This will lead to a decrease in both the equilibrium quantity and price of smart phones. Additionally, if fewer firms produce smart phones, there will be a decrease in supply, resulting in another leftward shift of the supply curve. This will further decrease the equilibrium quantity and the effect on price will be ambiguous. Therefore, the best choice is C - quantity will fall and the effect on price is ambiguous.

Question 12

Pens are normal goods.What will happen to the equilibrium price of pens if the prices of pencils rises,consumers experience an increase in income,writing in ink becomes fashionable,people expect the price of pens to rise in the near future,the population increases,fewer firms manufacture pens,and the wages of pen-makers increase

Accepted Answer

Each factor mentioned either increases demand (price of pencils rises making pens relatively cheaper, increase in income, writing in ink becomes fashionable, expectation of future price increase, population increase) or decreases supply (fewer firms manufacturing pens, increase in wages of pen-makers). Both of these effects put upward pressure on the equilibrium price of pens.

Question 13

If 50-inch flat screen TVs became cheaper and buyers expected Netflix subscription prices to fall next year,what could we safely conclude would happen to the equilibrium price of a new Netflix subscription

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Question 14

Which of the following would be most likely to increase the price of a new house

Accepted Answer

Higher wages for carpenters would increase the cost of building a house, while higher wood prices would increase the cost of materials. Increases in consumer incomes would lead to more demand for houses, which could increase prices. Higher apartment rents would make buying a house more attractive, and increases in population would also increase demand for housing. Expectations of higher house prices in the future would lead buyers to be willing to pay more now.

Question 15

What will happen to the equilibrium price of new textbooks if more students attend university,paper becomes cheaper,textbook authors accept lower royalties,and fewer used textbooks are sold

Accepted Answer

The effects on the equilibrium price of new textbooks are mixed and depend on the relative magnitudes of the shifts in supply and demand. More students attending university increases demand (tending to increase price), cheaper paper and lower royalties increase supply (tending to decrease price), and fewer used textbooks being sold can also increase demand for new textbooks (tending to increase price). The overall effect on price is ambiguous without knowing the relative sizes of these changes.

Question 16

New cars are normal goods.What will happen to the equilibrium price of new cars if the price of gasoline falls,the price of steel increases,public transportation becomes more expensive and less comfortable,auto workers receive higher wages,and automobile insurance becomes less expensive

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Question 17

What would happen to the equilibrium price and quantity of peanut butter if the price of peanuts went up,the price of jelly (a complementary good) increased,fewer firms decided to produce peanut butter,and health officials announced that eating peanut butter was bad for you

Accepted Answer

This scenario involves a combination of changing supply and demand factors. The increase in the price of peanuts and the decrease in the number of firms producing peanut butter both lead to a decrease in supply, which would lead to a higher price and lower quantity. The increase in the price of jelly, a complementary good, would lead to a decrease in demand for peanut butter, which would lead to a lower price and lower quantity. Finally, the announcement that eating peanut butter is bad for you would also decrease demand for peanut butter, leading to lower price and quantity. Overall, the combined effect of these changes is likely to be a decrease in quantity and an ambiguous effect on price, but more likely a decrease in price due to the decrease in demand.

Question 18

Pens are normal goods.What will happen to the equilibrium price of pens if the prices of pencils falls,consumers experience an increase in income,writing in ink becomes fashionable,people expect the price of pens to fall in the near future,the population increases,fewer firms manufacture pens,and the wages of pen-makers decrease

Accepted Answer

The equilibrium price of pens will be affected by multiple factors, some of which will lead to an increase, while others will lead to a decrease. For instance, if the price of pencils falls, some consumers may further substitute pens for pencils, leading to an increase in demand and price. Conversely, if writing in ink becomes more fashionable, demand for pens may increase, leading to an increase in price. However, if people expect the price of pens to fall in the near future, demand may decrease, leading to a decrease in price. Similarly, if the population increases, there may be more demand, while if fewer firms manufacture pens, the supply will decrease. Finally, if the wages of pen-makers decrease, the supply may decrease as well. As a result, the overall effect on the equilibrium price of pens is uncertain, making the answer ambiguous.

Question 19

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers rose and the price of tea rose

Accepted Answer

An increase in wages for coffee-bean pickers raises production costs, reducing supply and increasing price. A rise in tea prices makes coffee more attractive, increasing demand and further raising price. The effect on quantity is ambiguous due to opposing supply and demand shifts.

Question 20

Consider the following scenario: a new manufacturing process is introduced to make hockey skates.The new process is more efficient,lowers the cost of producing hockey skates,and allows more firms start producing hockey skates.At the same time,more individuals prefer hockey as a leisure activity and hockey league registration fees have gone down.What will happen to the equilibrium price and quantity

Accepted Answer

The new manufacturing process increases supply (more firms can produce at lower costs), and the growing interest in hockey increases demand. Both effects push quantity up, but their opposing effects on price (supply increase tends to lower price, demand increase tends to raise price) make the net effect on price ambiguous.

Quiz 4: The Market Forces of Supply and Demand