Deck 3: The Market Forces of Supply and Demand

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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.

Answer 3

quantity demanded.

Question 4

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 5

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 6

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 7

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

Question 8

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 9

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

Question 10

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.

Question 11

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 12

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 13

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 14

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.

Question 15

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 16

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 17

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

Question 18

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

Question 19

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 20

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

Question 21

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 22

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

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

Question 23

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 24

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

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

Question 25

If a drought destroyed half of the Western Cape wine crop at a time when the health benefits of red wine were being well publicised, economists would expect that in the market for wine

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 26

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

A) Shoes and pizza.
B) Cars and computers.
C) Soccer balls and soccer boots.
D) Rugby tickets and soccer tickets.

Question 27

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 28

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 29

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 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

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 32

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 33

Table 3-1
$$\begin{array} { | l | l | l | } \hline & \text { QUANITY } & \text { QUANTITY } \\\hline & \text { DEMANDED } & \text { SUPPLID } \\\hline \text { PRICE } & \text { (units per week) } & \text { (units per week) } \\\hline \text { R100 } & 1000 & 100 \\\hline \text { R150 } & 900 & 300 \\\hline \text { R200 } & 800 & 500 \\\hline \text { R250 } & 600 & 600 \\\hline \text { R300 } & 300 & 650 \\\hline\end{array}$$

-Refer to Table 3-1. Given this data, if the price of CD players is R200,

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

Question 34

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 35

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

A) Car rides.
B) Bus rides.
C) Taxi rides.
D) Truck rides.

Question 36

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 37

A decrease (leftward shift) in the supply of 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 38

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

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

Question 39

Table 3-1
$$\begin{array} { | l | l | l | } \hline & \text { QUANITY } & \text { QUANTITY } \\\hline & \text { DEMANDED } & \text { SUPPLID } \\\hline \text { PRICE } & \text { (units per week) } & \text { (units per week) } \\\hline \text { R100 } & 1000 & 100 \\\hline \text { R150 } & 900 & 300 \\\hline \text { R200 } & 800 & 500 \\\hline \text { R250 } & 600 & 600 \\\hline \text { R300 } & 300 & 650 \\\hline\end{array}$$

-Refer to Table 3-1. Given this data, the equilibrium price and quantity of CD players are

A) R150 and 300 players.
B) R200 and 800 players.
C) R250 and 600 players.
D) R300 and 650 players.

Question 40

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 41

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 42

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 43

Suppose there is an increase in both the supply and demand for laptops. Further, suppose the supply of laptops increases more than demand for laptops. In the market for laptops, 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 44

a) Given the table below, graph the demand and supply curves for flashlights. Make certain to label the equilibrium price and equilibrium quantity.
b) What is the equilibrium price and the equilibrium quantity?
c) Suppose the price is currently R50. 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 R20. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.

Question 45

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

Question 46

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 Department of Health announces that hot chocolate cures bad skin.
g) Protesting farmers dump millions of litres 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 R5 per cup above equilibrium.

Question 47

Suppose a frost destroys much of the Mpumalanga orange crops. 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 48

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 49

What determines the degree of competitiveness in a market?

Question 50

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 51

Suppose there is an increase in both the supply and demand for laptops. In the market for laptops, 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 52

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

Question 53

Fill in the table below, showing whether equilibrium price and equilibrium quantity go up, go down, stay the same, or change ambiguously.

Question 54

a. What is the difference between a "change in supply" and a "change in quantity
supplied?" Graph your answer.
b. For each of the following changes, determine whether there will be a change in quantity supplied or a change in supply.
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 sellers

Question 55

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 56

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 57

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.