Question 1

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Accepted Answer

As Velcro becomes more popular, the demand for shoelaces is likely to decrease, leading to a decrease in both the equilibrium price and quantity for shoelaces.

Question 2

If the demand for coffee makers increases,

Accepted Answer

When demand increases, the equilibrium price rises, leading to an increase in the quantity supplied as producers respond to the higher price.

Question 3

A hotel in New Hampshire charges $150 per room in the winter ski season and $90 during the summer months. The number of rooms and operating costs are constant year round. These prices indicate

Accepted Answer

The higher price in the winter suggests increased demand during the ski season, indicating a rightward shift in demand.

Question 4

Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would happen if the price of eggs were not permitted to rise by law?

Accepted Answer

The answer of Around Easter time, the price of eggs...

Question 5

An increase in supply will cause

Accepted Answer

An increase in supply typically leads to a lower price, which increases the quantity demanded according to the law of demand.

Question 6

An agricultural economist reports that corn prices are very high this year and that corn growers are earning substantial profits. He concludes that government action is needed to direct more farmers to grow corn. Is such action necessary? Why or why not?

Accepted Answer

The answer of An agricultural economist reports that corn prices...

Question 7

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the

Accepted Answer

The increase in both price and quantity sold suggests that demand has increased, shifting the demand curve to the right, while the supply curve remains unchanged.

Question 8

A decrease in demand will cause

Accepted Answer

A decrease in demand leads to a lower equilibrium price, which results in a decrease in quantity supplied, as suppliers are less willing to produce at lower prices.

Question 9

Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to develop breast cancer. According to economic analysis, how would this information affect the market for alcohol?

Accepted Answer

The information linking alcohol consumption to breast cancer risk would likely lead to a decrease in demand as consumers become more health-conscious, thus placing downward pressure on price.

Question 10

An increase in demand will cause

Accepted Answer

An increase in demand leads to a higher equilibrium price, which incentivizes producers to increase the quantity supplied.

Question 11

Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,

Accepted Answer

If saccharin is found to cause cancer, consumers will likely switch to aspartame as a safer alternative, increasing its demand and thus its price.

Question 12

Susan says, "If the price of wool coats goes up, suppliers will offer more of the coats for sale." Brad replies, "It takes three months to harvest wool and employ all the steps necessary to produce a wool coat. Quantity supplied cannot possibly increase for three months." Is Brad correct? Why or why not?

Accepted Answer

The answer of Susan says, "If the price of wool...

Question 13

A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will affect the market for peanut butter and the market for jelly, a complementary good.

Accepted Answer

The answer of A terrible storm wipes out 70 percent...

Question 14

Sam lives in a town with a population of 3,000. He says, "This town really needs a pizza restaurant. People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because they couldn't make any money." Evaluate Sam's statement.

Accepted Answer

The answer of Sam lives in a town with a...

Question 15

A recent editorial in a local newspaper argues, "Consumers need to know more about products than just their price. They need to know how these prices are determined, who owns the businesses, and the wages of the workers." Is the editorial writer correct? Why or why not?

Accepted Answer

The answer of A recent editorial in a local newspaper...

Question 16

A question on an economics exam asks, "What happens in the market for jelly when the price of peanut butter increases?" Allison, an excellent student, shows the demand for jelly increasing. Is she necessarily wrong? Why or why not?

Accepted Answer

The answer of A question on an economics exam asks,...

Question 17

Economists maintain that the price of a product has no effect on demand. How can this be true?

Accepted Answer

The answer of Economists maintain that the price of a...

Question 18

A decrease in supply will cause

Accepted Answer

A decrease in supply means that the quantity supplied at each price level is lower. This will lead to a decrease in the equilibrium quantity demanded, as consumers will be willing to pay less for the good or service.

Question 19

"The operator of the tunnel that links Britain and France, Eurotunnel, said that commercial and tourist traffic using its car and coach shuttle service had fallen sharply in 2004, leading to a drop in operating revenues of 4%. Eurotunnel's chief executive, Jean-Louis Raymond, blamed cut-throat competition from budget airlines." (news story, January 2005)
A) If Mr. Raymond is correct, are the services of airlines and Eurotunnel substitutes or complements?
B) Use demand and supply analysis to explain how lower airfares between Paris and London impact the market for the shuttle services of Eurotunnel.

Accepted Answer

The answer of "The operator of the tunnel that links...

Question 20

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

Accepted Answer

The hormone increases milk production, leading to an increase in supply. This typically results in a lower equilibrium price and a higher equilibrium quantity in the market.

Quiz 3: Demand, Supply, and the Market Process