Deck 3: The Market Forces of Supply and Demand

Question 1

If pencils and paper are complements, an increase in the price of pencils causes the demand for paper to decrease or shift to the left.

Answer 1

True

Question 2

The law of demand states that an increase in the price of a good

A) increases the supply of that good.
B) decreases the quantity demanded for that good.
C) decreases the demand for that good.
D) increases the quantity supplied of that good.

Answer 2

B

Question 3

An increase in the price of steel will shift the supply of cars to the right.

Answer 3

False

Question 4

The demand curve for iPhones shows the quantity of iPhones demanded

A) by suppliers of those phones.
B) at the equilibrium price for iPhones.
C) at each level of income.
D) at each possible price of iPhones.

Question 5

The market supply curve is the horizontal summation of the individual supply curves.

Question 6

Suppose that a large dairy farmer is able to raise the market price of milk by withholding milk supply from the market. In this instance,

A) the milk market is perfectly competitive.
B) buyers will decrease their demand for milk.
C) buyers will increase their demand for milk.
D) the milk market is imperfectly competitive.

Question 7

The amount of a good or service that buyers would be willing and able to purchase at a specific price is known as

A) quantity demanded.
B) demand.
C) supply.
D) quantity supplied.

Question 8

If an increase in the price of coffee leads to an increase in the demand for tea, then coffee and tea are likely to be

A) complements.
B) inferior goods
C) normal goods
D) substitutes

Question 9

A perfectly competitive market consists of products that are all slightly different from one another.

Question 10

Which of the following are the best examples of substitute goods?

A) personal computers and computer software programs
B) milk and cookies
C) Samsung Galaxy and Apple iPhone
D) hot dogs and mustard

Question 11

If there is a shortage of a good, then the price of that good tends to fall.

Question 12

When the price of a good is below the equilibrium price, it causes a surplus.

Question 13

Because there are many buyers and sellers in a perfectly competitive market, neither has any power to influence price. They are said to be price takers.

Question 14

The law of demand states that an increase in the price of a good decreases the demand for that good.

Question 15

An advance in the technology employed to manufacture roller blades will result in a decrease in the equilibrium price and an increase in the equilibrium quantity bought and sold in the market for roller blades.

Question 16

If Coke and Pepsi are substitutes, an increase in the price of Coke will cause an increase in the equilibrium price and quantity bought and sold in the market for Pepsi.

Question 17

A group of buyers and sellers with the potential to trade is known as

A) a cartel.
B) a market.
C) an industry.
D) a sector.

Question 18

A perfectly competitive market has

A) only one seller.
B) many buyers and sellers
C) a few dominant sellers
D) at least a few sellers

Question 19

In a perfectly competitive market, both buyers and sellers have ________ knowledge and so are able to make decisions independently

A) perfect.
B) imperfect
C) little
D) a fair amount of

Question 20

The commercial airliner industry, consisting of Boeing and Airbus, represents

A) perfect competition.
B) oligopoly.
C) monopoly.
D) None of the above are correct.

Question 21

Higher wages in the European car industry would __________ the prices of European-made cars and __________ the quantity traded.

A) lower; lower
B) lower; raise
C) raise; lower
D) raise; raise

Question 22

An inferior good is one for which an increase in income causes a(n)

A) decrease in supply.
B) increase in demand.
C) increase in supply.
D) decrease in demand.

Question 23

If the price of a good is equal to the equilibrium price,

A) there is a shortage and the price will fall.
B) the quantity demanded is equal to the quantity supplied and the price remains unchanged.
C) there is a surplus and the price will rise.
D) there is a shortage and the price will rise.
E) there is a surplus and the price will fall.

Question 24

An increase in the number of tomato producers will

A) increase market supply because the price of tomatoes will rise.
B) increase market supply because market demand will increase as more tomatoes are produced.
C) increase market supply because market supply is the sum of all the individual tomato producers' supply curves.
D) increase market demand but leave market supply unchanged.

Question 25

Which of the following sets of goods are most likely to be complementary goods?

A) shoes and pizza
B) cars and computers
C) footballs and football boots
D) football tickets and baseball tickets

Question 26

When a market is in equilibrium,

A) quantity demanded will equal quantity supplied.
B) a shortage will be present.
C) a surplus will be present.
D) sellers will continue to expand production to increase revenues.

Question 27

If a drought destroyed half of the French garlic crop at a time when the health benefits of garlic were being well publicized, economists would expect that in the market for garlic

A) quantity exchanged would rise but the change in price is uncertain without further information.
B) price would rise but the change in quantity exchanged is uncertain without further information.
C) both price and quantity exchanged would rise.
D) price would rise and quantity exchanged would fall.

Question 28

Temporary shortages in a market are eliminated by

A) decreases in the price, which cause quantity supplied to fall and quantity demanded to rise.
B) decreases in the price, which cause quantity supplied to rise and quantity demanded to fall.
C) increases in the price, which cause quantity supplied to fall and quantity demanded to rise.
D) increases in the price, which cause quantity supplied to rise and quantity demanded to fall.

Question 29

The discovery of new gold in South America will __________ the price of gold and __________ the quantity of gold traded.

A) raise; raise
B) lower; raise
C) raise; lower
D) lower; lower

Question 30

All of the following shift the supply of watches to the right except

A) an advance in the technology used to manufacture watches.
B) an increase in the price of watches.
C) a fall in the cost of metals used in watch production
D) a decrease in the wage of workers employed to manufacture watches.
E) manufacturers' expectation of lower watch prices in the future.

Question 31

Refer to Table 3-1. Given this data, if the price of CD players is €200, ?
$\begin{array}{l}\text { Table 3-1 }\\\begin{array}{|l|l|l|}\hline & \text { QUANTITY } & \text { QUANTITY } \\\hline & \text { DEMANDED } & \text { SUPPLIED } \\\hline\underline { \text { PRICE }} & \underline {\text { (units per week) }} & \underline {\text { (units per week) }} \\\hline € 100 & 1000 & 100 \\\hline € 150 & 900 & 300 \\\hline € 200 & 800 & 500 \\\hline € 250 & 600 & 600 \\\hline € 300 & 300 & 650 \\\hline\end{array}\end{array}$
?

A) there will be a surplus.
B) there will be a shortage.
C) the market is in equilibrium.
D) the supply will increase.

Question 32

A decrease (leftward shift) in the supply for a good will tend to cause

A) an increase in the equilibrium price and quantity.
B) a decrease in the equilibrium price and an increase in the equilibrium quantity.
C) a shift in the demand curve to the left
D) a decrease in the equilibrium price and quantity.
E) an increase in the equilibrium price and a decrease in the equilibrium quantity.

Question 33

Suppose that the demand for apples increased more than the supply of apples increased. The net effect of these two changes would be

A) an increase in the equilibrium price and a decrease in the equilibrium quantity.
B) an increase in the equilibrium price and an increase in the equilibrium quantity.
C) a decrease in the equilibrium price and an increase in the equilibrium quantity.
D) a decrease in the equilibrium price and a decrease in the equilibrium quantity.

Question 34

Refer to Table 3-1. Given this data, the equilibrium price and quantity of CD players are ?
$\begin{array}{l}\text { Table 3-1 }\\\begin{array}{|l|l|l|}\hline & \text { QUANTITY } & \text { QUANTITY } \\\hline & \text { DEMANDED } & \text { SUPPLIED } \\\hline\underline { \text { PRICE }} & \underline {\text { (units per week) }} & \underline {\text { (units per week) }} \\\hline € 100 & 1000 & 100 \\\hline € 150 & 900 & 300 \\\hline € 200 & 800 & 500 \\\hline € 250 & 600 & 600 \\\hline € 300 & 300 & 650 \\\hline\end{array}\end{array}$
?

A) €150 and 300 players.
B) €200 and 800 players.
C) €250 and 600 players.
D) €300 and 650 players.

Question 35

Which of the following shifts the demand for watches to the right?

A) an increase in the price of watches
B) a change in the cost of producing watches
C) a decrease in the price of watch batteries if watch batteries and watches are complements
D) a decrease in consumer incomes if watches are a normal good
E) a decrease in the price of watches

Question 36

If the price of a good is below the equilibrium price,

A) there is a shortage and the price will rise.
B) the quantity demanded is equal to the quantity supplied and the price remains unchanged.
C) there is a shortage and the price will fall.
D) there is a surplus and the price will rise.
E) there is a surplus and the price will fall.

Question 37

If the price of a good is above the equilibrium price,

A) there is a surplus and the price will rise.
B) there is a shortage and the price will fall.
C) there is a shortage and the price will rise.
D) the quantity demanded is equal to the quantity supplied and the price remains unchanged.
E) there is a surplus and the price will fall.

Question 38

Which of the following are most likely to be an inferior good?

A) car rides.
B) bus rides.
C) taxi rides.
D) truck rides.

Question 39

If the same dairy can produce either whole milk or skimmed milk, an increase in the profitability of whole milk results in

A) a decrease in the quantity supplied of whole milk.
B) an increase in the supply of whole milk.
C) a decrease in the supply of skimmed milk.
D) an increase in the supply of skimmed milk.

Question 40

Consider a market in equilibrium. Firms who advertise in this market are attempting to shift the

A) supply curve to the right.
B) supply curve to the left.
C) demand curve to the left.
D) demand curve to the right.

Question 41

Suppose consumer tastes shift toward the consumption of apples. Which of the following statements is an accurate description of the impact of this event on the market for apples?

A) There is an increase in the quantity demanded of apples and in the supply for apples.
B) There is an increase in the demand and supply of apples.
C) There is an increase in the demand for apples and a decrease in the supply of apples.
D) There is a decrease in the quantity demanded of apples and an increase in the supply for apples.
E) There is an increase in the demand for apples and an increase in the quantity supplied of apples.

Question 42

In a market economy, supply and demand determine

A) both the quantity of each good produced and the price at which it is sold.
B) the quantity of each good produced but not the price at which it is sold.
C) the price at which each good is sold but not the quantity of each good produced.
D) neither the quantity of each good produced nor the price at which it is sold.

Question 43

Suppose a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift toward orange juice. What would we expect to happen to the equilibrium price and quantity in the market for orange juice?

A) Price will decrease; quantity is ambiguous.
B) The impact on both price and quantity is ambiguous.
C) Price will increase; quantity will increase.
D) Price will increase; quantity will decrease.
E) Price will increase; quantity is ambiguous.

Question 44

Suppose there is an increase in both the supply and demand for personal computers. In the market for personal computers, we would expect

A) the equilibrium quantity to rise and the equilibrium price to rise.
B) the equilibrium quantity to rise and the equilibrium price to fall.
C) the equilibrium quantity to rise and the equilibrium price to remain constant.
D) the change in the equilibrium quantity to be ambiguous and the equilibrium price to rise.
E) the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.

Question 45

Suppose there is an increase in both the supply and demand for personal computers. Further, suppose the supply of personal computers increases more than demand for personal computers. In the market for personal computers, we would expect

A) the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.
B) the equilibrium quantity to rise and the equilibrium price to rise.
C) the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous.
D) the equilibrium quantity to rise and the equilibrium price to fall.
E) the equilibrium quantity to rise and the equilibrium price to remain constant.

Question 46

What determines the degree of competitiveness in a market?

Question 47

a. What is the difference between a "change in demand" and a "change in quantity demanded?" Graph your answer.
b. For each of the following changes, determine whether there will be a change in quantity demanded or a change in demand.
i. a change in input costs
ii a change in producer expectations
iii. a change in price
iv. a change in technology
v. a change in the number of buyers

Question 48

List at least five of the seven assumptions upon which the model of supply and demand is based.

Question 49

Explain the difference between these two statements.
a. A rise in price leads to a decrease in quantity demanded.
b. A rise in price is caused by an increase in demand.

Question 50

A decrease in supply is represented by a

A) movement downward and to the left along a supply curve.
B) movement upward and to the right along a supply curve.
C) rightward shift of a supply curve.
D) leftward shift of a supply curve.

Question 51

Fill in the table below, showing whether equilibrium price and equilibrium quantity go up, go down, stay the same, or change ambiguously.
No Change in Supply
An Increase in Supply
A Decrease in Supply
No Change in
Demand
An Increase in
Demand
A Decrease in
Demand

Question 52

Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today?

A) The impact on both price and quantity is ambiguous.
B) Price will decrease; quantity is ambiguous.
C) Price will increase; quantity will decrease.
D) Price will increase; quantity is ambiguous.
E) Price will increase; quantity will increase.

Question 53

a) Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity.
Price
Quantity Demanded Per Month
Quantity Supplied Per Month
€5
6,000
10,000
€4
8,000
8,000
€3
10,000
6,000
€2
12,000
4,000
€1
14,000
2,000
b) What is the equilibrium price and the equilibrium quantity?
c) Suppose the price is currently €5. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.
d) Suppose the price is currently €2. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.

Question 54

The quantity demanded refers to the amount consumers are willing and able to purchase at different prices. Why is it important that consumers are not only willing, but also able to buy in analysing demand?

Question 55

Suppose we are analysing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and equilibrium quantity would change.
a) Winter starts, and the weather turns sharply colder.
b) The price of tea, a substitute for hot chocolate, falls.
c) The price of cocoa beans decreases.
d) The price of whipped cream falls.
e) A better method of harvesting cocoa beans is introduced.
f) The Surgeon General of the U.S. announces that hot chocolate cures acne.
g) Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h) Consumer income falls because of a recession, and hot chocolate is considered a normal good.
i) Producers expect the price of hot chocolate to increase next month.
j) Currently, the price of hot chocolate is $0.50 per cup above equilibrium.

Question 56

Explain why the relationship between price and quantity demanded is known as the 'law of demand'.