Question 1

If the demand for a product falls and the supply stays the same
A)the market clearing price will fall and the equilibrium quantity will rise.
B)the market clearing price will rise and the equilibrium quantity will fall.
C)both the market clearing price and the equilibrium quantity will fall.
D)both the market clearing price and the equilibrium quantity will rise.

Accepted Answer

When demand for a product decreases while supply remains constant, the market clearing price will fall because sellers are willing to accept lower prices to sell their products. The equilibrium quantity will also fall because there is less demand for the product at any given price, leading to fewer transactions.

Question 2

Suppose that initially a market is in equilibrium at a price of $10 and a quantity of 5000 units per day. Several months later, the market is in a new equilibrium at a price of $5 and a quantity of 5000 units per day. What happened in the market?

Accepted Answer

The answer of Suppose that initially a market is in...

Question 3

If both buyers and sellers expect the price of a commodity to rise in the future, it is likely that the market clearing price ________ and the equilibrium quantity ________.
A)will fall, cannot be predicted
B)will rise, cannot be predicted
C)cannot be predicted, will fall
D)cannot be predicted, will rise

Accepted Answer

If both buyers and sellers expect the price of a commodity to rise in the future, this would lead to an increase in demand and a decrease in supply resulting in a higher equilibrium price and quantity. Therefore, the market clearing price will rise while the equilibrium quantity cannot be predicted with certainty.

Question 4

Suppose the price of lumber decreases. In the market for new homes, we would expect which of the following to occur?
A)the market clearing price will fall and the equilibrium quantity will rise.
B)the market clearing price will rise and the equilibrium quantity will fall.
C)both the market clearing price and the equilibrium quantity will fall.
D)both the market clearing price and the equilibrium quantity will rise.

Accepted Answer

A decrease in the price of lumber, a key input in the production of homes, will lower the cost for home builders. This will cause a shift in the supply curve for new homes to the right, as builders are now willing to supply more homes for each price. This increase in supply will lead to a new equilibrium with a lower market clearing price and a higher equilibrium quantity. Therefore, choice A is the correct answer.

Question 5

If the demand for a product remains the same and the supply falls,
A)the market clearing price will fall and the equilibrium quantity will rise.
B)the market clearing price will rise and the equilibrium quantity will fall.
C)both the market clearing price and the equilibrium quantity will fall.
D)both the market clearing price and the equilibrium quantity will rise.

Accepted Answer

If the supply falls and the demand remains the same, there will be a shortage in the market. This will cause the market clearing price to rise as buyers compete for the limited supply. However, the equilibrium quantity will fall because there is not enough supply to meet the demand at the higher price.

Question 6

If producers must receive a higher price to be induced to produce any quantity, we can conclude that
A)supply decreased.
B)demand decreased.
C)both supply and demand increased.
D)demand increased.

Accepted Answer

When producers need a higher price to produce any quantity, it means that the costs of producing have increased or the incentives to produce have decreased. This leads to a decrease in supply, as producers respond to the higher prices by decreasing the quantity they produce.

Question 7

In the market for domestic avocados, what would happen to the market clearing price and the equilibrium quantity if there was a drought in avocado growing areas?
A)The market clearing price would rise, and the equilibrium quantity would rise.
B)The market clearing price would fall, and the equilibrium quantity would rise.
C)The market clearing price would rise, and the equilibrium quantity would fall.
D)The market clearing price would fall, and the equilibrium quantity would fall.

Accepted Answer

A drought in avocado growing areas would decrease the supply of avocados. This would cause a leftward shift in the supply curve, resulting in an increase in the market clearing price and a decrease in the equilibrium quantity.

Question 8

When supply and demand for a product decrease simultaneously, we
A)can predict that both equilibrium price and quantity will increase.
B)can predict that both equilibrium price and quantity will decrease.
C)cannot predict equilibrium price, but know that equilibrium quantity will decrease.
D)cannot predict the change in either the equilibrium quantity or equilibrium price.

Accepted Answer

When both supply and demand decrease simultaneously, it is impossible to predict the change in equilibrium price, but we know for certain that the equilibrium quantity will decrease. This is because both a decrease in supply and a decrease in demand result in a reduction in the quantity demanded and supplied. However, the effect on price is ambiguous, as the decrease in supply would result in a higher price, while the decrease in demand would result in a lower price. Hence, we cannot predict the change in equilibrium price.

Question 9

Suppose the price of crude oil used to produce gasoline rises significantly. At the same time, consumers purchase hybrid cars in great numbers. In the market for gasoline, the market clearing price ________ and the equilibrium quantity ________.
A)definitely falls, is indeterminate
B)is indeterminate, definitely falls
C)definitely falls, definitely rises
D)definitely rises, is indeterminate

Accepted Answer

The answer of Suppose the price of crude oil used...

Question 10

Suppose that the market for coffee is in equilibrium at a price of $9.50 per pound and a monthly quantity of 20 million pounds. News of a drought in Brazil arrives so that people know that the supply of coffee months from now will be sharply reduced. What, if anything, will happen in the coffee market now?
 Explain.

Accepted Answer

The answer of Suppose that the market for coffee is...

Question 11

When the supply and/or demand curve shift, the new market clearing price is
A)reached instantaneously.
B)reached only after the government intervenes in the market.
C)reached after some period of adjustment.
D)never reached.

Accepted Answer

When the supply and/or demand curve shift, the market must adjust to find the new equilibrium price. This process takes a certain amount of time depending on the market and the magnitude of the shift. During this period, prices may temporarily be too high or too low, but eventually they will reach a new market clearing price where quantity supplied equals quantity demanded. This adjustment period may be short or long depending on the market and the specific circumstances of the shift, but it will eventually lead to a new equilibrium.

Question 12

If one day it was discovered that lime juice caused cancer, which of the following would likely result?
A)The supply curve for lime juice would shift to the right.
B)The supply curve for lime juice would shift to the left.
C)The demand curve for lime juice would shift to the right.
D)The demand curve for lime juice would shift to the left.

Accepted Answer

If it was discovered that lime juice caused cancer, it would result in a decrease in demand as consumers would likely switch to other non-cancer-causing alternatives. Therefore, the demand curve for lime juice would shift to the left. The supply curve may or may not be affected, as it would depend on the extent to which producers are able to adapt to the changing market demand.

Question 13

Suppose there is a simultaneous increase in demand and increase in supply. Given this information, we know with certainty that
A)both the equilibrium price and the equilibrium quantity will increase.
B)the equilibrium price will increase, and the equilibrium quantity will increase.
C)the equilibrium quantity will increase.
D)the equilibrium price will increase.

Accepted Answer

When there is a simultaneous increase in demand and increase in supply, we know that both factors are pushing towards an increase in the equilibrium quantity. However, we cannot accurately predict the effect on the equilibrium price as it will depend on the magnitude of the shifts in both demand and supply. In some cases, it is possible that the equilibrium price will remain unchanged, while in other cases it may increase or decrease. Therefore, the only certain outcome is the increase in the equilibrium quantity.

Question 14

Using a graph, show a market equilibrium. Suppose the costs of inputs increase. How is this shown on the graph?
 Explain what is happening in the market.

Accepted Answer

The answer of Using a graph, show a market equilibrium....

Question 15

If both buyers and sellers expect the price of a commodity to fall in the future, it is likely that the market clearing price ________ and the equilibrium quantity ________.
A)will fall, cannot be predicted
B)will rise, cannot be predicted
C)cannot be predicted, will fall
D)cannot be predicted, will rise

Accepted Answer

If both buyers and sellers expect the price of a commodity to fall in the future, demand and supply curves will shift to the left. As a result, the market clearing price will fall, but it is impossible to predict the exact magnitude of the shift and the equilibrium quantity. Therefore, option A is the best choice.

Question 16

If the demand for a product rises and the supply stays the same
A)the market clearing price will fall and the equilibrium quantity will rise.
B)the market clearing price will rise and the equilibrium quantity will fall.
C)both the market clearing price and the equilibrium quantity will fall.
D)both the market clearing price and the equilibrium quantity will rise.

Accepted Answer

When demand rises while supply stays constant, the market will experience a shortage of the product at the current price. As a result, consumers will be willing to pay more for the product, and sellers will be motivated to increase production to capture the higher prices. This will lead to both the market clearing price and equilibrium quantity increasing.

Question 17

When supply and demand for a product increase simultaneously, we
A)can predict that both the market clearing price and the equilibrium quantity will increase.
B)can predict that both the market clearing price and the equilibrium quantity will decrease.
C)cannot predict the market clearing price, but know that the equilibrium quantity will increase.
D)cannot predict the change in either the equilibrium quantity or the market clearing price.

Accepted Answer

When both supply and demand increase, the equilibrium quantity will definitely increase because more is being supplied and more is being demanded. However, the effect on the market clearing price is uncertain without knowing the relative magnitudes of the shifts in supply and demand.

Question 18

When supply increases and at the same time demand decreases, we
A)can predict that both equilibrium price and quantity will increase.
B)can predict that both equilibrium price and quantity will decrease.
C)cannot predict equilibrium quantity, but know that equilibrium price will decrease.
D)cannot predict the change in either the equilibrium quantity or equilibrium price.

Accepted Answer

When supply increases, it puts downward pressure on price because more goods are available. When demand decreases, it further reduces the price because there's less desire for the goods. However, the effect on quantity is uncertain without knowing the magnitude of the shifts in supply and demand.

Question 19

Describe the market process that should occur if the price of a product is below its equilibrium price; now describe what would occur if the price is above its equilibrium price, assuming no market interference.

Accepted Answer

The answer of Describe the market process that should occur...

Question 20

Economists assume that when there is a change in supply and/or demand, the market clearing price returns to the equilibrium
A)quickly.
B)slowly.
C)after a protracted negotiation process.
D)after an adjustment period.

Accepted Answer

When there is a change in supply and/or demand, it takes some time for the market clearing price to adjust and return to equilibrium. This adjustment period allows for producers and consumers to react to the new information and adjust their behavior accordingly. Therefore, the best choice is D, after an adjustment period.

Quiz 4: Extensions of Demand and Supply Analysis

If the demand for a product falls and the supply stays the same

Suppose that initially a market is in equilibrium at a price of $10 and a quantity of 5000 units per day. Several months later, the market is in a new equilibrium at a price of $5 and a quantity of 5000 units per day. What happened in the market?

If both buyers and sellers expect the price of a commodity to rise in the future, it is likely that the market clearing price and the equilibrium quantity .

Suppose the price of lumber decreases. In the market for new homes, we would expect which of the following to occur?

If the demand for a product remains the same and the supply falls,

If producers must receive a higher price to be induced to produce any quantity, we can conclude that

In the market for domestic avocados, what would happen to the market clearing price and the equilibrium quantity if there was a drought in avocado growing areas?

When supply and demand for a product decrease simultaneously, we

Suppose the price of crude oil used to produce gasoline rises significantly. At the same time, consumers purchase hybrid cars in great numbers. In the market for gasoline, the market clearing price and the equilibrium quantity .

When the supply and/or demand curve shift, the new market clearing price is

If one day it was discovered that lime juice caused cancer, which of the following would likely result?

Suppose there is a simultaneous increase in demand and increase in supply. Given this information, we know with certainty that

Using a graph, show a market equilibrium. Suppose the costs of inputs increase. How is this shown on the graph? Explain what is happening in the market.

If both buyers and sellers expect the price of a commodity to fall in the future, it is likely that the market clearing price and the equilibrium quantity .

If the demand for a product rises and the supply stays the same

When supply and demand for a product increase simultaneously, we

When supply increases and at the same time demand decreases, we

Describe the market process that should occur if the price of a product is below its equilibrium price; now describe what would occur if the price is above its equilibrium price, assuming no market interference.

Economists assume that when there is a change in supply and/or demand, the market clearing price returns to the equilibrium