Question 1

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 the demand for a product rises and the supply stays the same, there is excess demand in the market which leads to a shortage. This shortage can only be eliminated by an increase in the market clearing price. As the price increases, suppliers are incentivized to produce and sell more of the product, which results in an increase in the equilibrium quantity. Therefore, both the market clearing price and the equilibrium quantity will rise.

Question 2

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

When both buyers and sellers expect the price of a commodity to fall in the future, they will try to sell more and buy less respectively, at the current market price. This increased supply and decreased demand will lead to a surplus in the market, which will put downward pressure on the market clearing price. Therefore, the market clearing price will fall. The equilibrium quantity cannot be predicted because it will depend on the magnitude of the shift in the demand and supply curves.

Question 3

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 4

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, then the demand for the commodity will increase while the supply of the commodity will decrease in the market. This will result in an increase in the market clearing price and a decrease in the equilibrium quantity. Hence, the best choice is B – the market clearing price will rise, and the equilibrium quantity cannot be predicted.

Question 5

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, it takes time for the market to adjust and reach a new equilibrium price. This adjustment period can vary depending on the nature and size of the shift, but eventually the market will find a new clearing price. So, the new market clearing price is reached after some period of adjustment, hence the correct answer is C.

Question 6

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 7

Suppose that the market for coffee is in equilibrium at a price of $1.50 per pound and a monthly quantity of 20 million pounds. News of a freeze 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 8

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 9

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, resulting in a shift in the supply curve to the left. This would cause the market clearing price to increase as consumers compete for a smaller quantity of avocados. At the same time, the decrease in supply would cause the equilibrium quantity to fall as there are fewer avocados available in the market. Therefore, the correct answer is choice C.

Question 10

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, the effect on equilibrium quantity is clear: it will decrease because there are fewer goods being produced and less demand for them. However, the effect on price is ambiguous without knowing the relative magnitudes of the supply and demand shifts.

Question 11

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 likely lead to a decrease in demand for lime juice as consumers would avoid purchasing it due to health concerns. Therefore, the demand curve for lime juice would shift to the left. The supply curve may also shift to the left if producers decide to reduce their production of lime juice in response to the decrease in demand.

Question 12

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 to fully adjust and the price to return to the equilibrium. This period of adjustment is known as the "adjustment period". During this time, buyers and sellers must react to the changing market conditions by adjusting their behavior (such as changing production levels or buying habits) which leads to price movements. Once these adjustments have been made, the market clearing price will eventually return to the equilibrium.

Question 13

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 14

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 15

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 while demand remains the same, the market will experience a shortage of the product. As a result, the market clearing price will rise as consumers compete to purchase the limited amount of available products. However, with the higher price, some consumers may reduce their demand for the product, leading to a reduction in the equilibrium quantity.

Question 16

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 supply, the equilibrium quantity will definitely increase because both forces push the quantity in the same direction. However, the effect on price is uncertain without knowing the relative magnitudes of the shifts in demand and supply.

Question 17

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 18

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 would decrease the cost of producing new homes, leading builders to offer more new homes at lower prices. This would lead to a shift of the supply curve to the right and a decrease in the market clearing price of new homes, while the equilibrium quantity of new homes sold would rise.

Question 19

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 be induced to produce any quantity, it indicates that the cost of production has increased, which means that supply has decreased.

Question 20

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.

Quiz 4: Extensions of Demand and Supply Analysis

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

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 .

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 .

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 .

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

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?

When supply and demand for a product increase simultaneously, we

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

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

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

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.

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

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.

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

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

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