Question 1

A newspaper headline asserts: "Rising Demand Pushes Up Housing Prices." This headline
A) incorrectly implies that the demand for housing can change, whereas in fact only the quantity of housing demanded can change.
B) incorrectly implies that the price of housing will rise when demand increases.
C) incorrectly implies that more housing will be demanded at higher prices.
D) correctly implies that an increase in demand will increase the market clearing price.

Accepted Answer

An increase in demand for housing will indeed increase the market clearing price because there will be more buyers competing for a limited supply of housing. This is known as the law of supply and demand in economics. However, the other options are incorrect: A) The demand for housing can change, as it is influenced by factors such as population growth, income levels, and interest rates. B) A rise in demand will typically lead to a rise in price, all else equal. C) There is no guarantee that more housing will be demanded at higher prices, as other factors such as affordability and availability may come into play.

Question 2

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
A) movies are a normal good and incomes have increased.
B) high salaries for Hollywood actors have increased the cost of movie making.
C) movie theaters have experienced an increase in their operating costs due to increases in the minimum wage.
D) admission prices for other types of entertainment, such as live shows and sporting events, have also declined.

Accepted Answer

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

Question 3

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?
A) Price will decrease, but the effect on quantity is indeterminate.
B) Price will increase, but the effect on quantity is indeterminate.
C) Quantity will decrease, but the effect on price is indeterminate.
D) Quantity will increase, but the effect on price is indeterminate.

Accepted Answer

The increased demand for soy milk and other soy products due to new research will shift the demand curve to the right, increasing the equilibrium price and quantity. However, the drought conditions will reduce the supply of soybeans, shifting the supply curve to the left, which will cause the equilibrium price to increase and the equilibrium quantity to decrease. The net effect will be an increase in the equilibrium price, but the effect on quantity will be indeterminate as it depends on the relative magnitudes of the shifts in the demand and supply curves.

Question 4

List prices on new cars do not change very often, so
A) the real price of cars is very inflexible.
B) the prices of new cars can only be flexible if there are changes in the cost of materials.
C) price flexibility is not an important feature in the auto market.
D) price flexibility shows up primarily through the negotiations between buyers and sellers.

Accepted Answer

List prices on new cars are generally fixed, but price flexibility can still exist through negotiations between buyers and sellers. This means that the actual price paid for a new car can vary depending on factors such as supply and demand, competition, and individual bargaining power. Therefore, while the list price may be inflexible, the actual price paid for a new car can still be flexible through negotiations.

Question 5

The income of consumers increases. and the wage rate in the DVD industry increases. As a result,
A) the price of DVDs stays the same and the quantity sold can either increase or decrease, depending on whether the change in demand is greater than the change in supply.
B) the price of DVDs increases and the quantity sold can either increase, decrease or stay the same depending on whether the change in demand was greater than the change in supply.
C) the equilibrium quantity sold increases and price can either increase or decrease, depending on whether the change in demand is greater than the change in supply.
D) the equilibrium quantity sold can either increase or decrease and the price can either increase or decrease, depending on whether the change in demand was greater than the change in supply.

Accepted Answer

The answer of The income of consumers increases. and the...

Question 6

For which situation would we expect the adjustment speed to be the fastest?
A) The demand for surgeons increases.
B) A large increase in birth rates leads to an increase in elementary school teachers.
C) The demand for movie videos increases.
D) The demand for office space in downtown Chicago increases.

Accepted Answer

The demand for movie videos increases is likely to have the fastest adjustment speed as it is a market that is highly responsive to changes in demand. Movie videos can be rapidly produced and distributed, and streaming services can instantly adjust to changes in demand by altering their content offerings. In contrast, professions such as surgeons and elementary school teachers require years of education and training, making the adjustment speed slower. The demand for office space in downtown Chicago may also be slow to adjust as it involves physical construction and development.

Question 7

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?
A) An increase in demand pushes up the market clearing price of roses.
B) People buying the roses are irrational.
C) Roses are not subject to the law of demand.
D) Florists know that there are no substitutes for roses, so they take advantage of consumers on Valentine's Day.

Accepted Answer

According to the law of demand, as the price of a good increases, the quantity demanded decreases. However, on Valentine's Day, the demand for roses increases significantly, leading to a higher market clearing price. This can be explained by factors such as social norms and emotional attachment to the holiday, which may cause people to place a higher value on giving or receiving roses on this specific day.

Question 8

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?
A) Set the membership price above the market clearing price.
B) Set the membership price below the market clearing price.
C) Set the price so that the quantity supplied of memberships exceeds the quantity demanded.
D) Set the price at a level that will generate a surplus of memberships.

Accepted Answer

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

Question 9

In which of the following situations will both market clearing price and the equilibrium quantity increase?
A) an increase in demand with no change in supply
B) an increase in supply with no change in demand
C) a decrease in supply with no change in demand
D) a decrease in demand with no change in supply

Accepted Answer

When there is an increase in demand with no change in supply, the market clearing price and equilibrium quantity will both increase. This is because the increase in demand causes an imbalance in the market, with more buyers than sellers at the original price. As a result, the price will rise until it reaches a point where the quantity demanded equals the quantity supplied, which is the new equilibrium point. At this new equilibrium, both the price and quantity will be higher than the original equilibrium.

Question 10

In which of the following situations will both market clearing price and the equilibrium quantity decrease?
A) an increase in demand and no change in supply
B) an increase in supply with no change in demand
C) a decrease in supply with no change in demand
D) a decrease in demand with no change in supply

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 11

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?
A) Fresh fruit is not subject to the law of supply.
B) The supply of fresh fruit increases in the summer.
C) Fresh fruit is an inferior good.
D) Fresh fruit is not subject to the law of demand.

Accepted Answer

The increase in fresh fruit consumption in the summer is matched by an increase in supply, leading to lower prices. This shows that fresh fruit is subject to the law of supply, with a higher supply leading to a lower price.

Question 12

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
A) greed by suppliers of construction materials increased.
B) government prevented price gouging during the reconstruction period.
C) prices of construction materials fell in the Midwest.
D) environmental restrictions on lumbering in the Pacific Northwest were relaxed.

Accepted Answer

The answer of Suppose a hurricane causes a great deal...

Question 13

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?
A) The supply of Florida oranges decreased, causing the supply of California oranges to increase, which resulted in a higher price.
B) The supply of Florida oranges decreased, causing the supply of California oranges to decrease, which resulted in a higher price.
C) The supply of Florida oranges decreased, causing their price to increase, and thus causing the demand for California oranges to increase.
D) The demand for Florida oranges fell because of the freeze, and this led to a higher demand for California oranges.

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 14

What will happen when there is a rightward shift in the demand curve?
A) The product price will instantaneously adjust downward.
B) Product prices do not change in this situation.
C) Producers will decrease the product price.
D) A new, higher price is not instantaneously achieved, but the price will rise over time.

Accepted Answer

When there is a rightward shift in the demand curve, it means that consumers are willing to buy more of the product at any given price. However, producers may not immediately increase the price to match the increased demand. Instead, they may gradually increase the price over time as they observe the increased demand and adjust their production accordingly. Therefore, a new, higher price is not instantaneously achieved, but the price will rise over time.

Question 15

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
A) supply increased over time while demand remained the same.
B) supply decreased over time while demand remained the same.
C) demand increased over time while supply remained the same.
D) demand decreased over time while supply remained the same.

Accepted Answer

An increase in price and quantity sold suggests that demand has increased while supply remained the same. If supply had increased, the price would likely have decreased, and if supply had decreased, the quantity sold would have decreased as well.

Question 16

After an increase in the demand for construction workers, the market will attain its new long-run equilibrium faster if
A) wages are flexible.
B) wages are inflexible, forcing new people to enter the market.
C) unions restrict the number of new construction workers.
D) people ignore the shortage in the short run.

Accepted Answer

If wages are flexible, it allows for the market to quickly adjust to the increased demand for construction workers. As wages rise, it incentivizes more people to enter the market and become construction workers. This increase in supply will help the market quickly reach its new long-run equilibrium.

Question 17

During the Winter Olympics in Vancouver, some residents rented rooms to visitors. This behavior
A) helped reduce the shortage of hotel rooms caused by the high demand during the Olympics.
B) reduced the demand for tickets to the Olympics since many local residents left town while they rented out space in their homes.
C) hurt the hotel market in Vancouver in the long run because new hotels that should have been built were not built for the Olympics.
D) raised the demand for hotel rooms in Vancouver and should have been prevented by the city of Vancouver.

Accepted Answer

Renting rooms to visitors helped meet the high demand for accommodations during the Olympics, ultimately reducing the shortage of hotel rooms.

Question 18

The supply of eggs comes from chickens. The price of eggs will decrease if
A) the supply of chickens decreases.
B) the supply of eggs decreases.
C) the price of chickens increases.
D) the demand for eggs decreases.

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 19

In which of the following situations will market clearing price increase and the equilibrium quantity decrease?
A) an increase in demand with no change in supply
B) an increase in supply with no change in demand
C) a decrease in supply with no change in demand
D) a decrease in demand with no change in supply

Accepted Answer

When supply decreases with no change in demand, there will be fewer goods available at the existing price. This will result in an increase in the market clearing price as buyers compete for the limited supply. At the higher price, some buyers may choose not to purchase the goods, resulting in a decrease in the equilibrium quantity.

Question 20

The more flexible prices are, the
A) greater demand shifts have to be to bring about a new equilibrium.
B) larger the shifts in supply will be after a change in demand.
C) greater the reliance by sellers to change the nominal price.
D) more quickly a shock to the economy can be absorbed.

Accepted Answer

When prices are more flexible, they can adjust more quickly in response to changes in demand or supply. This means that shocks to the economy, such as a recession or sudden increase in demand, can be absorbed more quickly since prices can adjust more easily. Option A is incorrect because greater flexibility in prices actually means smaller shifts in demand are required to bring about a new equilibrium. Option B is incorrect because shifts in supply are not necessarily related to the flexibility of prices. Option C is also incorrect because greater flexibility in prices means sellers do not have to rely as heavily on changing nominal prices.

Quiz 4: Extensions of Demand and Supply Analysis

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

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

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

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

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

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?

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

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

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?

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

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?

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

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

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

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

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

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

The more flexible prices are, the