Question 1

The supply of eggs comes from chickens. The price of eggs will decrease if

Accepted Answer

When the demand for eggs decreases, it means fewer people want to buy eggs, which can lead to a surplus of eggs on the market. To sell this surplus, sellers might lower the price of eggs, leading to a decrease in the price of eggs.

Question 2

The more flexible prices are, the

Accepted Answer

When prices are more flexible, it is easier for them to adjust to changes in supply and demand. This means that when there is a shock to the economy, prices can adjust more quickly to help the market re-establish an equilibrium. Thus, the more flexible prices are, the more quickly a shock to the economy can be absorbed.

Question 3

Roses are more expensive on Valentine's Day than at other times of the year, yet sales of roses are highest on that day. How does economic theory account for this?

Accepted Answer

According to the law of demand, as the price of a good rises, the quantity demanded of that good decreases. However, on Valentine's Day, the demand for roses is so high that it overwhelms the supply, resulting in a higher market clearing price. This is an example of an increase in demand pushing up the market clearing price of roses.

Question 4

Suppose you observe that the price of a good increases and that the quantity of this good sold also increases. If only the demand curve or the supply curve shifts this suggests that

Accepted Answer

When the price of a good increases and the quantity sold also increases, it suggests that either the demand curve shifted to the right (increased demand) or the supply curve shifted to the left (decreased supply). Since the question states that only one curve shifted, it must be the demand curve that shifted to the right. This means that consumers are willing and able to buy more of the good at every given price, causing the equilibrium quantity to increase along with the price.

Question 5

The income of consumers increases. and the wage rate in the DVD industry increases. As a result

Accepted Answer

An increase in consumer income typically increases demand for normal goods like DVDs, while an increase in wage rates increases production costs, reducing supply. This leads to an increase in price, but the quantity sold depends on the relative magnitude of demand and supply changes.

Question 6

For which situation would we expect the adjustment speed to be the fastest?

Accepted Answer

The demand for movie videos has a relatively short adjustment time due to the ease of producing and distributing videos compared to other goods and services. Therefore, the adjustment speed is expected to be the fastest in this situation.

Question 7

After an increase in the demand for construction workers, the market will attain its new long-run equilibrium faster if

Accepted Answer

If wages are flexible, then as demand for construction workers increases, their wages will also increase, incentivizing more people to enter the industry. This will help the market attain its new long-run equilibrium faster as there will be more workers available to meet the demand. If wages are inflexible or unions restrict the number of new construction workers, it may take longer for the market to adjust and reach its new equilibrium. People ignoring the shortage in the short run may lead to inefficiencies in the market and a longer adjustment period in the long run.

Question 8

A newspaper headline asserts: "Rising Demand Pushes Up Housing Prices." This headline

Accepted Answer

The headline correctly implies that an increase in demand will increase the market clearing price. When demand for housing increases, there will be more buyers competing for the limited supply of housing, which leads to an increase in the market clearing price. This headline does not make any incorrect implications about the ability to change demand, the causality between demand and price, or the relationship between quantity demanded and price.

Question 9

List prices on new cars do not change very often, so

Accepted Answer

Price flexibility in the auto market often occurs through negotiations between buyers and sellers, rather than frequent changes in the list prices of new cars.

Question 10

In which of the following situations will market clearing price increase and the equilibrium quantity decrease?

Accepted Answer

If there is a decrease in supply with no change in demand, the market clearing price will increase because there are fewer goods available for purchase. At the same time, the equilibrium quantity will decrease because there is less supply available to meet the same level of demand as before.

Question 11

In which of the following situations will both market clearing price and the equilibrium quantity increase?

Accepted Answer

When there is an increase in demand with no change in supply, the demand curve shifts to the right, leading to an increase in both market clearing price and equilibrium quantity. This is because at the initial price level, buyers demand more goods and services, so sellers respond by increasing the price to maintain equilibrium in the market. As a result, both price and quantity increase.

Question 12

Suppose you observe that the price of movie admissions decline and that the number of people attending movies declines as well. If only the demand curve or the supply curve shifts, this suggests that

Accepted Answer

The answer of Suppose you observe that the price of...

Question 13

Suppose a hurricane causes a great deal of destruction in Florida. After the hurricane, it takes much longer than usual for the reconstruction to take place. A possible explanation for this is

Accepted Answer

Government prevention of price gouging can lead to shortages and delays in reconstruction as suppliers may not have the incentive to increase supply or prioritize the affected area.

Question 14

Suppose new research shows that soy milk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the equilibrium price and quantity of soybeans?

Accepted Answer

The new research showing more health benefits of soy products will increase the demand for soybeans, which will cause an increase in the equilibrium price. However, the extensive damage to the soybean crop due to drought conditions will decrease the supply of soybeans, which will also cause an increase in the equilibrium price. The combined effect of these two factors is an increase in the equilibrium price of soybeans, while the effect on quantity is indeterminate as it depends on the extent of damage to the crop.

Question 15

In which of the following situations will both market clearing price and the equilibrium quantity decrease?

Accepted Answer

When there is a decrease in demand with no change in supply, both the market clearing price and the equilibrium quantity will decrease. This is because the lower demand shifts the demand curve leftward, leading to a lower equilibrium price and quantity as suppliers are willing to sell less at lower prices.

Question 16

People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this?

Accepted Answer

The increase in consumption of fresh fruit during the summer is met with an increase in supply, resulting in lower prices. This reflects the basic principles of supply and demand, where an increase in demand (consumption) results in an increase in supply and a decrease in prices.

Question 17

To enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. Even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. How do these country clubs set the price of membership to ensure that they have a waiting list?

Accepted Answer

The answer of To enhance their prestige, some country clubs...

Question 18

Suppose that an early frost damages the Florida orange crop. As a result, the price of California oranges increases. Ceteris paribus, which one of the following statements best explains this situation?

Accepted Answer

The decrease in the supply of Florida oranges due to the frost would increase their price, making California oranges a more attractive option for consumers. This increased demand for California oranges, with supply remaining constant, would lead to a higher price for California oranges.

Question 19

What will happen when there is a rightward shift in the demand curve?

Accepted Answer

A rightward shift in the demand curve indicates an increase in demand for the product. Initially, there may not be enough supply to meet the increased demand, so the price may rise. Over time, producers may increase supply to meet the demand, and the price may eventually stabilize at a new, higher level. Therefore, a new, higher price is not instantaneously achieved, but the price will rise over time.

Question 20

During the Winter Olympics in Vancouver, some residents rented rooms to visitors. This behavior

Accepted Answer

Renting rooms to visitors helped alleviate the shortage of hotel rooms caused by high demand during the Olympics. This was a positive outcome and shows how locals can help meet the needs of visitors during major events.

Quiz 4: Extensions of Demand and Supply Analysis