Question 1

Which of the following is the effect of a decrease in the price of potato chips on the market for pretzels,a substitute good,that is initially in equilibrium?

Accepted Answer

The answer of Which of the following is the effect...

Question 2

Suppose the market for a good is in equilibrium.Which of the following is most likely to occur if both the demand for and the supply of the good decrease during a particular point in time?

Accepted Answer

When both the demand for and the supply of a good decrease during a particular point in time, this will cause a decrease in the equilibrium quantity. The decrease in demand will cause a leftward shift in the demand curve, while the decrease in supply will cause a leftward shift in the supply curve. Both of these shifts will cause a decrease in the equilibrium quantity, as the quantity that buyers are willing and able to purchase will be lower, and the quantity that sellers are willing and able to supply will also be lower. The equilibrium price may increase or decrease, but it cannot be determined without additional information.

Question 3

For a given upward-sloping supply curve,an increase in the demand for chocolate chips will result in a _____

Accepted Answer

An increase in demand will shift the demand curve to the right, which will result in a higher equilibrium price and a higher equilibrium quantity, all other things remaining constant. This is because there will be more buyers in the market, which will drive up the price, and suppliers will increase the quantity supplied to meet the higher demand.

Question 4

Suppose the market for cookies is initially in equilibrium.For a given upward-sloping supply curve,other things being equal,the equilibrium price and equilibrium quantity of cookies is most likely to decline when _____

Accepted Answer

When the price of milk, a complement to cookies, increases, demand for cookies is likely to decrease because consumers will buy less milk, which in turn reduces their demand for cookies. This leads to a decline in both the equilibrium price and quantity of cookies.

Question 5

Suppose the market for a good is initially in equilibrium.Which of the following is most likely to occur if both the demand for and the supply of the good increases during a particular point in time?

Accepted Answer

When both the demand for and the supply of a good increase, the equilibrium quantity will increase. The equilibrium price may stay the same or increase slightly depending on the magnitude of the increase in demand and supply. However, it is unlikely that the equilibrium price will decrease as both demand and supply are increasing.

Question 6

Identify the effect of a reduction in the price of steel on the equilibrium price and quantity of automobiles for a given demand curve.

Accepted Answer

A reduction in the price of steel will decrease the production costs for automobile manufacturers, allowing them to supply more automobiles at any given price. This will result in a rightward shift in the supply curve, leading to a decrease in the equilibrium price and an increase in the equilibrium quantity of automobiles.

Question 7

Exhibit 4.6
 
-The following Exhibit shows the market for a good.D' and S are the demand curve and the supply curve,respectively.Which of the following is most likely to shift the demand curve from D' to D?

Accepted Answer

The answer of Exhibit 4.6
 
-The following Exhibit shows the...

Question 8

Suppose the market for a good is initially in equilibrium.For a given upward-sloping supply curve,all other things remaining unchanged,an increase in demand will typically _____

Accepted Answer

When there is an increase in demand, the demand curve shifts to the right resulting in a higher equilibrium price and quantity. This is because the increase in demand leads to a higher willingness to pay by consumers, leading to an increase in price, and encourages suppliers to increase production, leading to an increase in quantity supplied. Therefore, the equilibrium quantity and price both increase in this scenario.

Question 9

Suppose the market for coffee is initially in equilibrium.If the tea harvest is bad in a particular year,then identify the most likely impact on the equilibrium price and quantity of coffee.

Accepted Answer

A bad tea harvest would likely increase the demand for coffee as a substitute, leading to higher equilibrium prices and quantities for coffee.

Question 10

A new cattle feed has been found to increase the amount of milk each cow produces.Which of the following is likely to be the impact on the market for milk if this cattle feed is used by most dairies?

Accepted Answer

If the new cattle feed increases the amount of milk each cow produces, this will increase the overall supply of milk in the market. Therefore, the supply curve of milk will shift to the right. As a result, the equilibrium price of milk will decrease, and the equilibrium quantity of milk will increase. This means dairies can produce more milk at a lower cost, which will benefit both the producers and consumers.

Question 11

Suppose the market for kids' shoes is initially in equilibrium.For a given upward-sloping supply curve,other things being equal,an increase in the price of Velcro which is used as fasteners for kids' shoes will result in a(n)_____

Accepted Answer

An increase in the price of Velcro, a factor of production, will decrease supply as an increase in the production cost for producers. As a result, the supply curve will shift to the left, causing a decrease in the equilibrium quantity of shoes. Additionally, the increase in production cost will cause an increase in the equilibrium price of shoes. Therefore, the correct answer is C - an increase in the equilibrium price but a decrease in the equilibrium quantity of shoes.

Question 12

For a given downward-sloping demand curve,all other things remaining constant,a decrease in supply will cause a(n)_____

Accepted Answer

The answer of For a given downward-sloping demand curve,all other...

Question 13

Exhibit 4.6
 
-The Exhibit given below shows the market for a good.D and S are the demand curve and the supply curve,respectively.Which of the following is least likely to shift the demand curve from D to D'?

Accepted Answer

A decrease in the price of the good in question affects the quantity demanded rather than shifting the entire demand curve. Changes in the price of the good itself move along the demand curve, not shift it.

Question 14

Suppose the price of compact disks (CDs)increases,other things equal.Which of these is most likely to occur in the market for DVDs,a substitute?

Accepted Answer

When the price of CDs increases, consumers may switch to buying DVDs instead. This increase in demand for DVDs would result in a shift of the demand curve to the right, leading to an increase in both the quantity demanded and the price of DVDs. Therefore, option B – an increase in the demand for DVDs – is the most likely outcome.

Question 15

In the market for chewing gum,the current price is 50 cents per pack and 100,000 packs are sold.Which of the following events is most likely to result in a new equilibrium price of 60 cents and quantity of 90,000 packs?

Accepted Answer

An increase in the prices of the ingredients used to make chewing gum would increase the cost of production for each pack of gum, leading to a decrease in the supply of gum in the market. This would result in a shift in the supply curve to the left, causing the equilibrium price to increase and the equilibrium quantity to decrease. This change in market conditions is consistent with a new equilibrium price of 60 cents and quantity of 90,000 packs. The other events listed are not likely to directly affect the supply or demand of chewing gum, and would therefore not result in a shift in the supply or demand curves.

Question 16

For a downward-sloping demand curve,all other things remaining constant,a rightward shift of the supply curve _____

Accepted Answer

If the demand curve is downward-sloping, a rightward shift of the supply curve will decrease the equilibrium price, as there is now an excess supply of the good. However, the increase in supply will also increase the equilibrium quantity, as producers are able and willing to sell more units at the lower price. Therefore, choice D is correct, as it states that the equilibrium price decreases and the equilibrium quantity increases.

Question 17

If supply decreases for a given demand curve,______

Accepted Answer

When supply decreases for a given demand curve, the immediate effect is that at the original price, the quantity demanded exceeds the quantity supplied, creating an excess demand. This situation puts upward pressure on prices, leading to an increase in the equilibrium price. As prices rise, the quantity demanded decreases (moving along the demand curve), leading to a decrease in the equilibrium quantity. This scenario does not shift the demand curve itself but rather moves along it due to changes in supply.

Question 18

Attempts are being made to develop a biodegradable plastic using agricultural produce such as potatoes.Identify a likely impact on the equilibrium price and quantity of potatoes if such attempts are successful,all other things remaining constant.

Accepted Answer

If the attempts to develop biodegradable plastic using potatoes are successful, it would likely increase the demand for potatoes as a raw material. This increased demand, with supply remaining constant, would lead to both a higher equilibrium price and quantity for potatoes.

Question 19

Suppose the market for beef cattle was initially in equilibrium.An increase in the price of the fodder used to feed cattle would cause _____

Accepted Answer

An increase in the price of fodder used to feed cattle will increase the cost of production for beef producers, thus decreasing the profitability of producing beef. This will lead to a decrease in the supply of beef cattle in the long run, leading to a higher price for beef. The demand for beef may also decrease slightly due to the higher price, but the main driver of the price increase will be the decrease in supply. Option A is incorrect because an increase in the cost of production will not lead to an increase in demand. Option C is also incorrect as an increase in supply would only occur if the cost of production was lower, not higher. Option D is incorrect as it assumes that both supply and demand will fall, which may not be the case. Option E is incorrect as an increase in supply would not drive the price of beef down if the supply of beef cattle is decreasing due to an increase in the cost of production.

Question 20

The market for chewing gum is in equilibrium with a current price of 50 cents per pack and a quantity of 100,000 packs per day.Which of the following events is most likely to result in a new equilibrium price of 75 cents and a new equilibrium quantity of 125,000 packs,the supply curve for chewing gums remaining unchanged?

Accepted Answer

An increase in the price of other kinds of candy would likely cause consumers to substitute towards chewing gum, increasing the demand for chewing gum. This would shift the demand curve to the right, leading to a higher equilibrium price and quantity, assuming supply remains unchanged.

Quiz 4: Demand, supply, and Markets