Question 1

When the government places a tax on the producer of a good or service:

Accepted Answer

When the government places a tax on the producer of a good or service, it increases the cost of production for the producer. This leads to a decrease in the quantity of the good or service supplied, resulting in a leftward shift of the supply curve. Therefore, the correct answer is D).

Question 2

When the demand curve shifts to the left and all else is held constant,the equilibrium price ________ and the equilibrium quantity ________.

Accepted Answer

When the demand curve shifts to the left, it indicates a decrease in demand. This leads to a lower equilibrium price and a lower equilibrium quantity, as suppliers will reduce prices to sell their now less demanded products, and the quantity sold will also decrease due to the lower demand.

Question 3

When the government places a tax on a good and all else is held constant,which of the following would most likely happen?

Accepted Answer

When the government places a tax on a good, it increases the cost of production for the firms and they pass on the cost to the consumers. This leads to an increase in the price of the good. As a result, the overall consumption of the good decreases as people tend to buy less quantity of the good due to the increased prices. Thus, choice A is the correct answer.

Question 4

On January 30,2012,Starbucks India announced plans to open 50 cafés.What would you expect to happen to the market for coffee in India,assuming all other factors are held constant?

Accepted Answer

The opening of 50 new Starbucks cafés in India would increase the availability of coffee to consumers, thus increasing the supply of coffee in the market. This does not directly affect the demand for coffee, which is determined by consumers' desire and ability to purchase coffee at various prices.

Question 5

Refer to the accompanying graph.If a tax is placed on a good and all else is held constant,we would assume that the supply curve would:

Accepted Answer

When a tax is placed on a good, the cost of producing the good increases, reducing the profitability of producing it. As a result, producers supply less of the good at every price level, shifting the supply curve to the left. Therefore, the supply curve would shift from S1 to S2 (assuming S3 is an arbitrary line).

Question 6

When a hurricane rips through Florida,the price of oranges rises because the:

Accepted Answer

When a hurricane hits Florida, it damages the orange crops, leading to a decrease in the supply of oranges. As a result, the supply curve shifts to the left, causing the price of oranges to rise. Therefore, option D is the correct answer.

Question 7

Old Navy stocks more Bermuda shorts during the summer months than in the winter months.The resulting shift in supply explains:

Accepted Answer

Price expectations influence how much of a product a company like Old Navy might stock at different times of the year. Expecting higher demand and potentially higher prices in the summer for Bermuda shorts, Old Navy increases its stock to meet this anticipated demand.

Question 8

An improvement in technology:

Accepted Answer

Improvements in technology allow producers to increase output while using the same amount of input. This leads to increased productivity and potentially higher profits. It does not necessarily shift the demand curve and may not always lead to increased profits, so options A and B are incorrect. Option C is incorrect because a decrease in output would not be a benefit of an improvement in technology. Option E is incorrect because an improvement in technology would not cause a shift to the left on the supply curve; it would actually shift the supply curve to the right.

Question 9

In 1993,the government increased the tax on gasoline producers from 14.1 cents per gallon to 18.4 cents per gallon.Our model of supply and demand predicts that:

Accepted Answer

According to the basic model of supply and demand, an increase in the tax on gasoline producers would increase their costs, leading them to supply less gasoline at each price. This would cause a decrease in the overall supply of gasoline, leading to an increase in the equilibrium price and a decrease in the equilibrium quantity. The demand for gasoline is not affected by the tax itself, but rather by the changes in price and quantity resulting from the decrease in supply. Therefore, the correct answer is D: the supply for gasoline decreased.

Question 10

When the number of firms in a market decreases:

Accepted Answer

When the number of firms in a market decreases, the supply curve shifts to the left because there are fewer suppliers in the market. This reduces the quantity of goods or services supplied at any given price level. It does not affect the demand for the product, as the number of buyers in the market remains constant. Therefore, the demand curve does not shift.

Question 11

If the price of rubber were to increase by 20% over the fiscal year and if all else were held constant,what would you expect to happen to the supply curve of tires that are sold separately from automobiles?

Accepted Answer

An increase in the price of rubber, a key component in tire production, would increase the cost of producing tires, leading to a decrease in the supply of tires. Therefore, the supply curve would shift to the left.

Question 12

Refer to the accompanying figure.What event would cause the change in the equilibrium?

Accepted Answer

The answer of Refer to the accompanying figure.What event would...

Question 13

When the price of ground beef increases and all else is held constant,we would expect the supply of hamburgers to ________,causing the price to ________.

Accepted Answer

When the price of ground beef (an input cost) increases, the supply of hamburgers (made from ground beef) would decrease because it becomes more expensive to produce hamburgers. This decrease in supply, with demand remaining constant, would lead to an increase in the price of hamburgers.

Question 14

Which of the following could cause the supply curve for the market for oranges to shift to the left?

Accepted Answer

A severe hurricane in Florida would cause damage to orange crops and the supply of oranges would decrease, shifting the supply curve to the left. A decrease in the cost of workers would make it cheaper to produce oranges and increase the supply, shifting the supply curve to the right. An increase in the income of consumers of oranges would increase demand and have no effect on the supply curve. An increase in the price of orange juice would affect the demand for oranges, but not the supply. A new study claiming that eating oranges causes heart disease would also affect demand rather than supply.

Question 15

Which of the following changes in the coffee market would shift the supply curve to the right?

Accepted Answer

A decrease in wage for employees in the coffee business would lead to lower production costs, making it more profitable for firms to produce and supply coffee. This would result in a rightward shift of the supply curve.

Answers A, C, D, and E do not directly relate to production costs or firm behavior, and thus would not lead to a shift in the supply curve.

Question 16

A subsidy:

Accepted Answer

A subsidy is a payment made by the government to encourage consumption or production of a good or service. It is usually meant to offset the cost of production or to make the good or service more affordable for consumers. This can lead to an increase in the supply and demand of that particular product.

Question 17

When supply shifts to the right and demand stays constant,the equilibrium price ________ and the equilibrium quantity ________.

Accepted Answer

When supply increases (shifts to the right) and demand stays constant, the equilibrium price decreases due to the higher availability of the product, and the equilibrium quantity increases because more of the product is available at a lower price.

Question 18

James specializes in college-level economics tutoring.He knows that during the two weeks before finals he can charge more for an hour of private tutoring.Expecting this price increase,James will:

Accepted Answer

James anticipates higher demand for his tutoring services as finals approach, leading him to withhold some of his current tutoring capacity to take advantage of higher future prices. This action effectively reduces the current supply of his tutoring services, shifting the supply curve to the left.

Question 19

Firm A notices that Firm B is making a profit by producing footballs.There is nothing stopping Firm A from entering the football market,so it does.Holding all else constant,the number of firms in the market will:

Accepted Answer

When Firm A enters the football market, the number of firms increases, leading to an increase in supply.

Question 20

If a new french fry-cutting machine works twice as fast as the old machine,McDonald's would:

Accepted Answer

Since the new machine works twice as fast as the old machine, McDonald's would be able to produce and sell more french fries at every price, leading to an increase in supply. This increased supply would allow McDonald's to meet the demand for french fries more efficiently and potentially increase their profits.

Quiz 3: The Market at Work: Supply and Demand