Deck 2: Demand, Supply, and Equilibrium Prices

Question 1

All else constant, all of the following would cause the demand curve for a good to shift except:

A) a change in taxes imposed on suppliers.
B) a change in the price of a related good.
C) a change in consumer's incomes.
D) a change in the number of buyers.

Answer 1

A

Question 2

A home theatre system and and an HD television would be considered an example of:

A) substitute goods.
B) giffen goods.
C) inferior goods.
D) complementary goods.

Answer 2

D

Question 3

Assume the demand function for good X can be written as Qd = 80 - 3Px + 2Py + 10I, where Px = the price of X, Py = the price of good Y, and I = Consumer income. According to this equation:

A) because the coefficient on Px is negative, X is an inferior good.
B) X and Y are complements
C) because the coefficient on income is positive, X is a giffen good.
D) X and Y are substitutes.

Answer 3

D

Question 4

All of the following are non-price factors that influence demand except:

A) tastes and preferences.
B) quantity supplied.
C) income.
D) the prices of related goods.

Question 5

Many people consider hot dogs to be an inferior good. For such people, all else constant, a decrease in income would cause their demand for hot dogs to:

A) increase.
B) stay the same.
C) decrease.
D) cannot be determined with the information given.

Question 6

Referring to the previous question, all else constant, a one unit increase in the price of good Y would cause the quantity demanded of good X to:

A) decrease by 2 units.
B) increase by 2 units.
C) decrease by 1 unit.
D) decrease by 5 units.

Question 7

"Supply" is best defined as the relationship between:

A) the current price of a good and the quantity supplied at that price.
B) the price of a good or service and the quantity supplied by producers at each price during a period of time.
C) the cost of producing a good and the price consumers are willing to pay for it.
D) the quantity supplied and the price people are willing to pay for a good.

Question 8

In the market for French wines, an increase in demand is illustrated by:

A) a movement up the demand curve.
B) a movement down the demand curve.
C) a shift of the demand curve to the left.
D) a shift of the demand curve to the right.

Question 9

All else constant, an increase in foreign imports would cause the supply of cameras in the United States to:

A) increase.
B) stay the same.
C) decrease.
D) cannot be determined with the information given.

Question 10

According to the Wall Street Journal article in the text, all of the following are possible causes of a surplus in the copper market except:

A) steady production uninterrupted by strikes.
B) substitution away from copper to other materials such as aluminum.
C) an increase in mining of lower grade materials.
D) a surge in demand from foreign importers.

Question 11

Which of the following would cause a change in supply, as opposed to a change in quantity supplied, in the market for used homes?

A) A decrease in the price of rental housing.
B) A decrease in the price of used homes.
C) An increase in the incomes of home buyers.
D) An increase in the number of buyers in the market for used homes.

Question 12

An increase in the number of buyers in the market for LCD TVs would cause the market demand curve for LCD TVs to:

A) shift right.
B) shift left.
C) stay the same because market demand doesn't depend on the number of buyers.
D) shift left or right depending on whether the new buyers purchase more or less than existing customers at each price.

Question 13

If movies on DVD for home rental and movies seen at a theater are substitutes, and the price of movies seen at a theater increases, the demand for movies on DVD will:

A) increase.
B) stay the same.
C) decrease.
D) cannot be determined.

Question 14

Which of the following would not cause the supply curve for gasoline to shift?

A) A change in the wages paid to gas station attendants.
B) A change in the number of gas stations.
C) A change in the incomes of drivers.
D) A significant war in the Middle East.

Question 15

DSL and broadband internet service would be considered an example of:

A) substitute goods.
B) giffen goods.
C) inferior goods.
D) complementary goods.

Question 16

In the market for cell phones, all of the following would cause the supply of cell phones to change except:

A) an improvement in the technology used to produce cell phones.
B) an increase in the cost of labor used to produce cell phones.
C) a change in cell phone producers' expectations.
D) an increase in the number of buyers in the market for cell phones.

Question 17

"Demand" is best defined as the relationship between:

A) the price of a good and the quantity consumers are willing and able to buy at each price.
B) the current price of a good and the quantity demanded at that price.
C) the quantity supplied and the price people are willing to pay for a good.
D) the amount of income someone has and the price he is willing to pay for a good.

Question 18

Which of the following is not considered a factor that influences supply?

A) Technology.
B) Taxes and subsidies.
C) The number of buyers.
D) Resource prices.

Question 19

If the price of salmon increases relative to the price of cod, the demand for:

A) cod will decrease.
B) cod will increase.
C) salmon will decrease.
D) salmon will increase.

Question 20

All else constant, as more firms substitute alternative materials, e.g., plastic, for copper, the market price of copper would be expected to:

A) increase.
B) stay the same.
C) decrease.
D) cannot be determined with the information given.

Question 21

All else constant, an increase in the number of buyers in the market for cell phone service would cause:

A) equilibrium price and quantity to increase.
B) equilibrium price and quantity to decrease.
C) equilibrium price to increase and equilibrium quantity to decrease.
D) equilibrium price to decrease and equilibrium quantity to increase.

Question 22

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. All else constant, this would cause the:

A) equilibrium price and quantity to decrease.
B) equilibrium price and quantity to increase.
C) equilibrium price to increase and equilibrium quantity to decrease.
D) equilibrium price to decrease and equilibrium quantity to increase.

Question 23

Assume an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Assume the price of large cars increases due to a shift in consumers' preferences toward large cars and away from smaller cars. What would reasonably be expected to happen to the equilibrium price and quantity of the firm's small cars?

A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would decrease and equilibrium quantity would increase.
D) Equilibrium price and quantity would both increase.

Question 24

Assume wages paid by a firm to its workers decrease. What will be the reaction of consumers as the market moves to its new equilibrium?

A) Quantity demanded will decrease.
B) Quantity demanded will increase.
C) The demand curve will shift to the left.
D) There will be no reaction by consumers, since input prices determine supply, not demand.

Question 25

Assuming there is a surplus in the market for copper, if the market for copper is allowed to adjust, the ultimate result will be:

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

Question 26

As the price of milk increases, what happens at the original equilibrium in the market for cereal that signals market participants that the original equilibrium must change? Milk and cereal are complements.)

A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.

Question 27

Which of the following statements is correct?

A) A change in demand or supply can only be caused by a change in price.
B) A simultaneous decrease in demand and increase in supply will result in an increase in equilibrium price and uncertain effect on quantity.
C) If price is currently above equilibrium, market adjustments will result in a decrease in price and quantity supplied.
D) An increase in supply invariably leads to a shortage in the affected market.

Question 28

Assume the supply function for good X can be written as Qs = -100 + 27Px - 5Py - 1.8W, where Px = the price of X, Py = the price of good Y, and W = Wage index for workers in industry X. According to this equation:

A) X and Y are substitutes.
B) X and Y are complements.
C) a decrease in wages would cause a decrease in the quantity supplied at each price.
D) each one unit increase in price causes quantity supplied to increase by 73 units.

Question 29

Assume there is an improvement in the technology used to produce Blu-ray disc players. What could be expected to happen to the equilibrium price and quantity in the market for Blu-ray disc players?

A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would decrease and equilibrium quantity would increase.
D) Equilibrium price and quantity would both increase.

Question 30

All else constant, a large decrease in the number of people who want to own sport utility vehicles SUVs) because of their poor fuel efficiency could be expected to cause:

A) an increase in the supply of SUVs.
B) a decrease in the equilibrium price of gasoline.
C) an increase in the equilibrium price of SUVs.
D) an increase in the supply of gasoline.

Question 31

Assume declining profits in the market for Internet service force several firms in the area to drop out of the market. Which of the following best describes the effect of the reduction in the number of service providers and the subsequent adjustment of the market to the new equilibrium price and quantity?

A) Quantity supplied would decrease, creating excess supply at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal.
B) Quantity supplied would decrease, creating excess demand at the initial equilibrium price. Demand would then decrease until quantity demanded and quantity supplied are once again equal.
C) Supply would increase, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.
D) Supply would decrease, creating excess demand at the initial equilibrium price. Price would then rise, causing quantity demanded to decrease and quantity supplied to increase until a new equilibrium is reached.

Question 32

Referring to the previous question, which of the following best describes the adjustment to the new market equilibrium?

A) Price would fall, causing quantity demanded to increase and quantity supplied to decrease until the new equilibrium is reached.
B) Price would rise, causing quantity demanded to decrease and quantity supplied to increase until the new equilibrium is reached.
C) Price would fall, causing quantity demanded and quantity supplied to increase until the new equilibrium is reached.
D) Price would rise, causing quantity demanded and quantity supplied to decrease until the new equilibrium is reached.

Question 33

Referring to the previous question, what will happen to the equilibrium price and quantity of cars?

A) They will stay the same as domestic producers replace the cars once imported.
B) The shortage will cause the equilibrium price to increase and equilibrium quantity will decrease.
C) The surplus will cause equilibrium price to decrease and equilibrium quantity to increase.
D) The shift in the demand curve will cause equilibrium price to increase and quantity to increase.

Question 34

Referring to the previous question, all else constant, a 5 unit increase in the wage index would cause:

A) quantity supplied to increase by 9 units and be shown by a movement up the supply curve.
B) quantity supplied to decrease by 9 units and be shown by a movement down the supply curve.
C) quantity supplied to increase by 9 units and be shown by a rightward shift of the supply curve.
D) quantity supplied to decrease by 9 units and be shown by a leftward shift of the supply curve.

Question 35

All else constant, what is the ultimate market reaction of suppliers to an increase in the incomes of consumers?

A) Suppliers do not react, because a change in income shifts the demand curve, not the supply curve.
B) The supply curve shifts to the right.
C) The supply curve shifts to the left.
D) Quantity supplied increases.

Question 36

Assume the income of consumers of good X a normal good) increases. What occurs at the initial equilibrium price for X that signals market participants that the equilibrium price must change?

A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.

Question 37

Assume that in the market for plasma TVs there is a simultaneous increase in supply and an increase in the quantity demanded. The result will be:

A) an increase in equilibrium price and quantity.
B) a decrease in equilibrium price and quantity.
C) an increase in equilibrium quantity and uncertain effect on equilibrium price.
D) a decrease in equilibrium price and increase in equilibrium quantity.

Question 38

As the price of milk increases, what would reasonably be expected to happen to the equilibrium price and equilibrium quantity of cereal? Milk and cereal are complements.)

A) Equilibrium price would increase and equilibrium quantity would decrease.
B) Equilibrium price and quantity would both decrease.
C) Equilibrium price would decrease and equilibrium quantity would increase.
D) Equilibrium price and quantity would both increase.

Question 39

Assume the auto market is initially in equilibrium with imports from Japan taking up a significant share of the market. Now assume a quota on imports of Japanese cars is established. What will occur at the initial equilibrium price to signal market participants regarding the change that has taken place?

A) A surplus is created by an increase in supply.
B) A surplus is created by a decrease in demand.
C) A shortage is created by an increase in demand.
D) A shortage is created by a decrease in supply.

Question 40

Assume the Congress approves increased drilling for oil in Alaska to address the current energy shortage. People who are in favor of this policy argue that,ceteris paribus, this would cause:

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

Question 41

In the run up to the war in Iraq that began in 2003, one of the many concerns raised was that a war could result in a decrease in the supply of oil. At the same time, the U.S. economy was having a hard time recovering from the most recent recession and, as a result, incomes of many consumers had decreased due to layoffs, wage cuts, and so forth). All else constant, it was reasonable to predict,with certainty, that the combination of these two factors would cause the equilibrium:

A) quantity of oil to decrease.
B) quantity of oil to increase.
C) price of oil to increase.
D) price of oil to decrease.

Question 42

A "change in demand" is caused only by a change in the price of the good.

Question 43

Assume the demand function for good X can be written as
Qd = 80 - 3Px - 2Py + 10I
where Px = the price of X,
Py = the price of good Y, and
I = Consumer income.
This equation implies that X and Y are complements.

Question 44

File-sharing programs such as Napster, Kazaa, and iMesh make it possible for individuals to exchange music files over the Internet. All else constant, which of the following statements best describes how the development of these programs has affected the retail market for new music CDs?

A) Demand for CDs has decreased, causing equilibrium price and quantity to decrease.
B) Demand for CDs has increased, causing equilibrium price and quantity to increase.
C) Demand for CDs has decreased, causing equilibrium price to decrease and equilibrium quantity to increase.
D) Demand for CDs has increased, causing equilibrium price to increase and equilibrium quantity to decrease.

Question 45

"Demand" refers to the relationship between the price of a good and the quantity consumers are willing and able to buy at each price.

Question 46

Assume goods X and Y are substitutes. An increase in the price of X would cause the demand for Y to increase.

Question 47

Assume there is a simultaneous decrease in the incomes of people in the market for new homes and a decrease in the wages paid to carpenters, plumbers, and electricians. All else constant, we can predict, with certainty, that in the market for new homes the equilibrium:

A) quantity of new homes will decrease.
B) quantity of new homes will increase.
C) price of new homes will decrease.
D) price of new homes will increase.

Question 48

Which of the following best describes the influence of successful advertising on the market for aspirin?

A) The market demand curve shifts to the right, creating a shortage at the original equilibrium price.
B) Individuals' demand curves shift to the right, but the market demand curve remains at its original position.
C) The market supply curve shifts to the right, creating a surplus at the original equilibrium price.
D) The market supply curve for aspirin shifts to the right, causing equilibrium price to decrease.

Question 49

File-sharing programs such as Napster, Kazaa, and iMesh make it possible for individuals to exchange music files over the Internet. On September 3, 2003, Universal Music Group announced plans to reduce the wholesale price of music CDs it distributes by an average of 25-30 percent. Which of the following statements is correct regarding the combined effects of the development of file-sharing programs and Universal Music Group's price change in the market for new music CDs?

A) The equilibrium quantity of CDs would increase; the effect on equilibrium price is uncertain.
B) The equilibrium quantity of CDs would decrease; the effect on equilibrium price is uncertain.
C) The equilibrium price of CDs would increase; the effect on equilibrium quantity is uncertain.
D) The equilibrium price of CDs would decrease; the effect on equilibrium quantity is uncertain.

Question 50

Assume the cost of certain inputs used to produce artificial Christmas trees increases and, at the same time, the economy moves into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and quantity of artificial Christmas trees? Assume artificial Christmas trees are normal goods.)

A) Price will increase; quantity cannot be determined.
B) Price will decrease; quantity cannot be determined.
C) Quantity will increase; price cannot be determined.
D) Quantity will decrease; price cannot be determined.

Question 51

Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following would not be expected to happen?

A) Oil companies would "ration" their supplies of gasoline by raising price.
B) There would be a shortage of the original equilibrium price.
C) Quantity demanded would decrease.
D) The demand curve would shift to the left.

Question 52

Assume there is a simultaneous decrease in the cost of batteries used in hybrid cars and a shift in consumer preferences toward more fuel-efficient vehicles. Based on this, we can conclude, with certainty, that in the market for hybrid cars, equilibrium:

A) price will decrease.
B) price will increase.
C) quantity will decrease.
D) quantity will increase.

Question 53

Assume goods X and Y are complements. A decrease in the price of X would cause the demand for Y to increase.

Question 54

Assume the technology for producing personal computers improves and, at the same time, individuals discover new uses for personal computers so that there is greater utilization of personal computers. Which of the following will happen to equilibrium price and equilibrium quantity?

A) Price will increase; quantity cannot be determined.
B) Price will decrease; quantity cannot be determined.
C) Quantity will increase; price cannot be determined.
D) Quantity will decrease; price cannot be determined.

Question 55

On September 3, 2003, Universal Music Group announced plans to reduce the wholesale price of music CDs it distributes by an average of 25-30 percent. All else constant i.e., ignoring the effects of file-sharing programs), how would this change affect the retail market for new music CDs?

A) Demand for CDs would increase, causing equilibrium price and quantity to increase.
B) The supply of CDs would increase, causing equilibrium price to decrease and equilibrium quantity to increase.
C) Demand for CDs would decrease, causing equilibrium price and quantity to decrease.
D) The supply of CDs would decrease, causing equilibrium price to increase and equilibrium quantity to decrease.

Question 56

Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. In a market economy, which consumers would get the reduced supplies of gas?

A) The consumers who value gasoline the most and are able to pay for it.
B) Wealthy consumers.
C) Lower income consumers.
D) Who gets the gasoline would be a random process. Those who arrive at the service station first will get the gasoline, regardless what its price is.

Question 57

Assume there is a simultaneous increase in home foreclosures and a decrease in consumer incomes. Based on this information we can conclude, with certainty, that in the market for used single-family homes equilibrium:

A) price will increase.
B) price will decrease.
C) quantity will increase.
D) quantity will decrease.

Question 58

Assume the costs of production in the U.S. auto industry are rising and, at the same time, the prices of Japanese-made autos are decreasing. What would reasonably be expected to happen to the equilibrium price and quantity of U.S.-made autos?

A) Price will increase; quantity cannot be determined.
B) Price will decrease; quantity cannot be determined.
C) Quantity will increase; price cannot be determined.
D) Quantity will decrease; price cannot be determined.

Question 59

In order to import German goods into the United States, U.S. importers must buy those goods with German money, i.e., Euros. Assume, all else constant, there is a decrease in the price of U.S.-made cars compared to the price of German cars. Based on this information, we can conclude, with certainty, that in the market for Euros where the price of Euros is measured in dollars), this would cause:

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

Question 60

Assume the demand function for good X can be written as
Qd = 80 - 3Px + 2Py + 10I
where Px = the price of X,
Py = the price of good Y, and
I = Consumer income.
This equation implies that X and Y are substitutes.

Question 61

A simultaneous improvement in the technology used to produce computers and increase in the number of buyers in the computer market would cause the equilibrium price of computers to drop but have an uncertain effect on equilibrium quantity.

Question 62

Assume the market for cell phone service is initially in equilibrium. An increase in supply would cause a surplus at the initial equilibrium price. The market adjustment would then involve a decrease in price which would in turn cause quantity demanded to increase and quantity supplied to decrease until equilibrium is reestablished.

Question 63

A decrease in the incomes of people who buy canoes would cause the demand for canoes to decrease.

Question 64

Rent controls have the effect of keeping prices under control and maintaining an adequate supply of affordable housing for lower income people.

Question 65

When the supply of a good increases, the quantity supplied at each price is increasing as well.

Question 66

An increase in the price of fuel and fertilizer used for corn would cause farmers to increase corn production in an effort to make up for lost profits.

Question 67

Assume the market for used single-family homes is initially in equilibrium. All else constant, an increase in home foreclosures would cause equilibrium price and quantity to decrease.

Question 68

Assume X is an inferior good. If the incomes of people who buy X increase, demand for X will increase as well, but by a smaller percentage than the increase in income.

Question 69

Assume that in an effort to help consumers, the government decides to reduce the amount of taxes it imposes on sellers of gasoline, that is, sellers are required to pay the government a smaller fee for each gallon of gas they sell. In the market for gas, this would have the effect of causing an increase in the supply of gas and a decrease in equilibrium price.

Question 70

All else constant, an increase in the price of a good will cause the quantity supplied to increase.

Question 71

When price is greater than the market equilibrium price, a shortage is created.

Question 72

The market demand for a good is determined by horizontally summing the demand curves of individual consumers.

Question 73

When market price is higher than the equilibrium price, a surplus is created. This will put downward pressure on price, causing quantity demanded to increase and quantity supplied to decrease until equilibrium is reestablished.

Question 74

Assume the supply function for good X can be written as
Qs = -100 + 27Px - 5Py - 1.8W
where Px = the price of X,
Py = the price of good Y, and
W = Wage index for workers in industry X.
This equation implies that X and Y are substitutes in production.

Question 75

Consider the market for air travel. A simultaneous increase in the price of fuel and another terrorist attack on United States soil would cause the equilibrium quantity of air travel to go down, but have an uncertain effect on equilibrium price.

Question 76

The supply of a good is a function of price and the demand for the good.

Question 77

Prices of related goods are a determinant of demand but not supply.

Question 78

Assume the supply function for good X can be written as
Qs = -100 + 27Px - 5Py - 1.8W
where Px = the price of X,
Py = the price of good Y, and
W = Wage index for workers in industry X.
This equation implies that X and Y are complements in production.

Question 79

Federal subsidies to farmers can have the effect of creating a surplus in the market for certain crops.

Question 80

All else constant, an increase in the incomes of consumers in the market for diamonds would cause the supply of diamonds to increase.