Question 1

For quantity exchanged to decrease, but the price to rise, there must have been a(n)

Accepted Answer

A decrease in supply would lead to a decrease in the quantity exchanged and an increase in price, as the reduced availability of the product makes it more scarce, driving prices up.

Question 2

Are markets always in equilibrium?

Accepted Answer

Markets are not always in equilibrium, but the forces of supply and demand tend to move them toward it. External factors such as government regulations, natural disasters, and changes in consumer preferences can also affect the equilibrium.

Question 3

Ceteris paribus, if the market supply of a product decreases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

Accepted Answer

If market supply of a product decreases, the supply curve shifts leftward. This leads to a decrease in equilibrium quantity and an increase in equilibrium price.

Question 4

Suppose the United States steps up efforts to combat drug trafficking and, with the aid of the Colombian military, destroys a significant percentage of cocaine crops.Predict the impact of increased drug interdiction on the market for cocaine in Los Angeles.

Accepted Answer

If a significant percentage of the cocaine crops are destroyed, the supply of cocaine will decrease. This will cause an increase in the price of cocaine in Los Angeles as buyers compete for the reduced supply. The demand for cocaine may remain the same or decrease as a result of the increased drug interdiction efforts, but this would not directly impact the market price if the supply has decreased.

Question 5

In an effort to reduce the surplus of dairy products, agricultural legislation paid dairy farmers to slaughter their herds and sell them to packinghouses (meat producers) in 1996-1997.How did this influence the market for beef?

Accepted Answer

The slaughter of dairy herds increased the supply of beef, as packinghouses were producing more beef from the slaughtered cows. With an increase in supply, the market for beef would have become more saturated, leading to lower beef prices as a result.

Question 6

The invention of machinery that can double the amount of gold extracted from raw ore will likely lead mining companies to:

Accepted Answer

With the ability to extract double the amount of gold from raw ore, mining companies will be able to produce more gold at a lower cost, leading to a surplus of gold in the market. This surplus will likely cause a decrease in the world price of gold as the supply increases relative to the demand.

Question 7

Ceteris paribus, if negotiations lead to lower wages for airline employees, what will be the result in the market for air travel?

Accepted Answer

Lower wages for airline employees reduce the cost of production for airlines, leading to an increase in supply. This results in a decrease in equilibrium price and an increase in equilibrium quantity in the market for air travel.

Question 8

Which of the following is false?

Accepted Answer

If demand decreases and supply increases, there will be an excess supply (surplus) of the product, which will put downward pressure on the price. Therefore, the equilibrium price will fall rather than rise.

Question 9

You notice that the price of orange juice at your local grocery store has increased.Which of the following statements is not a possible explanation for the rise in the price of orange juice?

Accepted Answer

An increase in the domestic supply of oranges would likely lead to a decrease in the price of orange juice, not an increase.

Question 10

An increase in costs associated with additional security measures taken by the airlines is most likely to lead to:

Accepted Answer

An increase in costs associated with additional security measures taken by the airlines would increase the cost of production for the airlines, which would shift the supply curve to the left, leading to a decrease in the equilibrium quantity. At the same time, the increase in cost would also increase the price of airline tickets, leading to an increase in the equilibrium price. Therefore, the correct answer is an increase in equilibrium price and a decrease in equilibrium quantity.

Question 11

Ceteris paribus, if the market supply of a product increases, then equilibrium quantity will (be) ____ and equilibrium price will (be) ____.

Accepted Answer

With an increase in market supply, there is a greater quantity of the product available, which puts downward pressure on the equilibrium price as sellers compete to sell their products. As a result, buyers can purchase more quantity at a lower price, increasing the equilibrium quantity.

Question 12

In general, an increase in price could be caused by either:

Accepted Answer

An increase in price can be caused by either an increase in demand, meaning more people are willing to buy the product at the current price or a decrease in supply, meaning there is less of the product available at the current price. When there is an increase in demand, the demand curve shifts to the right, causing an increase in price and quantity sold. When there is a decrease in supply, the supply curve shifts to the left, causing an increase in price and a decrease in quantity sold. Therefore, only A is the correct answer as it includes both options, increase in demand or a decrease in supply, that can cause an increase in the price.

Question 13

Pork from pigs can be used to produce bacon or sausage, but not both.If the price of bacon rises for some reason, then, everything else equal:

Accepted Answer

If the price of bacon rises, consumers may shift their demand to sausage as a substitute, increasing demand for sausage and driving up its price.

Question 14

A shift in the supply curve of bicycles resulting from higher steel prices will lead to:

Accepted Answer

Higher steel prices will increase the cost of producing bicycles, causing bicycle manufacturers to supply fewer bicycles at any given price. This will lead to a leftward shift in the supply curve, resulting in higher equilibrium prices for bicycles.

Question 15

Coca-Cola bottlers increased their prices as the price of sugar (an important ingredient in producing Coke) rose sharply in the late 1980s.Under these circumstances, the increase in the price of Coke occurs as a result of a(n):

Accepted Answer

The increase in the price of sugar, an important ingredient in producing Coke, would cause a decrease in the supply of coke since it would be more expensive for bottlers to produce, leading to an increase in the price of Coke.

Question 16

A more efficient process for refining oil into gasoline is developed.As a result, the market price of gasoline:

Accepted Answer

A more efficient refining process reduces production costs, leading to a lower market price for gasoline. As the price decreases, the quantity of gasoline purchased increases due to higher demand at the lower price.

Question 17

A more efficient means of processing tree bark to produce an anticancer drug is discovered.As a result, the supply curve for the drug will:

Accepted Answer

The discovery of a more efficient means of processing tree bark to produce the anticancer drug will increase the supply of the drug, hence shifting the supply curve to the right. This increase in the supply of the drug will lead to a decrease in its price, hence the correct answer is option C.

Question 18

In 1975 a pocket calculator cost more than $50; in 1990 a calculator of the same quality cost less than $10.Which of the following explanations is most consistent with these facts?

Accepted Answer

An improvement in technology caused the supply of calculators to increase, depressing their price.

Question 19

The graph below most likely depicts a(n):

Accepted Answer

The graph shows a shift in the supply curve to the left, which indicates a decrease in supply. Therefore, the correct choice is B, supply decrease.

Question 20

Which of the following would most likely increase the price of chicken, a normal good?

Accepted Answer

The hot weather that kills millions of chickens before they are ready for market would decrease the supply of chicken, causing a shortage and resulting in an increase in price.

Quiz 3: Supply and Demand