Question 1

An increase in the price of a good will cause a decrease in the demand for a complementary good.

Accepted Answer

This is because an increase in the price of one good will make the complementary good relatively more expensive, leading to a decrease in demand for the complementary good. For example, if the price of peanut butter increases, the demand for jelly (a complementary good) may decrease because fewer people can afford to buy both.

Question 2

The market supply curve

Accepted Answer

The market supply curve is derived by horizontally summing the individual supply curves of all sellers in the market. Therefore, option A is the correct answer. Option B is incorrect because the market supply curve can be upward sloping in certain situations (e.g. if there are increasing returns to scale). Option C is incorrect because vertical summation would be used for demand curves, not supply curves. Option D is incorrect because the market supply curve can be derived through the horizontal summation of individual supply curves.

Question 3

If an increase in income leads to an increase in the demand for opera tickets, then operas are a(n) _____ good.

Accepted Answer

A normal good is one for which an increase in income leads to an increase in demand, and this scenario matches that definition. Inferior goods are the opposite, where an increase in income leads to a decrease in demand, while superior goods are those for which an increase in income leads to a more than proportional increase in demand. Substitutes refer to goods that can be used in place of one another, which is not relevant to this scenario.

Question 4

(Table) The table shows that

Accepted Answer

Person A is willing to pay $4 for the fourth doughnut, which is higher than the $3 that person B is willing to pay. However, person A is willing to pay $2 for the first doughnut, which is the same as person B's willingness-to-pay. Therefore, person A has a higher willingness-to-pay for the fourth doughnut but not for the first doughnut.

Question 5

Which of these markets is one that returns quickly to equilibrium after it is disrupted?

Accepted Answer

The stock market is known for its high liquidity and the ability to quickly adjust to new information, making it return to equilibrium faster than labor, real estate, or oil markets.

Question 6

Which event would shift the supply curve for gasoline to the right?

Accepted Answer

A technological innovation in the oil-drilling industry that dramatically lowers the cost of exploration would shift the supply curve for gasoline to the right by increasing the quantity of oil that producers are able and willing to supply at any given price.

Question 7

There is a(n) _____ relationship between price and quantity demanded.

Accepted Answer

A negative relationship means that as the price of a good increases, the quantity demanded decreases. This is known as the law of demand.

Question 8

Which event will cause an increase in the supply of yogurt?

Accepted Answer

An increase in the number of sellers in the yogurt market will cause an increase in the supply of yogurt as there will be more producers producing and selling yogurt.

Question 9

Suppose in the market for iPhones, the following two changes take place: (1) the cost of making iPhones rises, and (2) customers begin to prefer Android-platform smartphones over iPhones. What happens to equilibrium price and equilibrium quantity?

Accepted Answer

When the cost of making iPhones rises, the supply curve shifts to the left, leading to a higher equilibrium price and a lower equilibrium quantity. However, when customers begin to prefer Android-platform smartphones over iPhones, the demand for iPhones decreases, shifting the demand curve to the left. This leads to a lower equilibrium price but also a lower equilibrium quantity. The combined effect on the equilibrium price is indeterminate because one factor pushes the price up while the other pushes it down. However, both effects lead to a lower equilibrium quantity.

Question 10

(Figure: Interpreting Supply Shifts 3) When the supply shifts from S₀ to S₁, the equilibrium quantity changes from

Accepted Answer

The answer of (Figure: Interpreting Supply Shifts 3) When the...

Question 11

During the 2007-2009 recession, consumer spending on dogs and cats

Accepted Answer

Despite the national income decline during the recession, consumer spending on dogs and cats increased. This is because pets are often seen as members of the family and owners are willing to cut back on other expenses before reducing spending on their pets. Additionally, pets can provide emotional support during tough times, making them even more important to their owners during a recession.

Question 12

A firm will MOST likely decrease the price of its output if the

Accepted Answer

When the quantity supplied of a good exceeds the quantity demanded, it indicates a surplus in the market. To reduce this surplus and increase sales, a firm is likely to decrease the price of its output.

Question 13

A manufacturer of plastic canoes and fiberglass kayaks is experiencing an increase in the price of kayaks in the marketplace, while the price of oil used to make plastic is rising. These two events are MOST likely to lead to a(n)

Accepted Answer

The increase in the price of kayaks will likely lead to an increase in the quantity supplied of kayaks, as producers are incentivized to supply more at higher prices. The rising price of oil, a key input for plastic canoes, will likely decrease the supply of canoes due to higher production costs.

Question 14

When the supply of coffee decreases and the demand for coffee increases simultaneously, the price of coffee will

Accepted Answer

When the supply of coffee decreases and the demand for coffee increases simultaneously, it creates a shortage of coffee in the market. This leads to an increase in the equilibrium price of coffee, as consumers are willing to pay more to obtain the limited supply of coffee. Therefore, the price of coffee will rise.

Question 15

If the price of gasoline rises, then

Accepted Answer

When the price of gasoline rises, the quantity demanded of gasoline decreases, causing a movement along the demand curve for gasoline. The demand for gas-powered cars may decrease as consumers may prefer more fuel-efficient options like hybrid cars. However, the demand for hybrid cars may not necessarily increase as they may still be more expensive compared to gas-powered cars. Therefore, the correct answer is B, there is an upward movement along the demand curve for gasoline.

Question 16

As the price of orange juice rises, the

Accepted Answer

As the price of orange juice rises, consumers may look for substitutes, such as grape juice, leading to an increase in the demand for grape juice.

Question 17

A shift in the demand curve can be caused by a change in

Accepted Answer

A shift in the demand curve can be caused by a change in one of the determinants of demand, such as consumer preferences, income, prices of related goods, consumer expectations, or number of buyers. Changes in these factors can cause the entire demand curve to shift left or right, indicating a change in the quantity demanded at every price level. Changes in the price of the item itself only cause a movement along the existing demand curve. The behavior of suppliers and costs of production are related to changes in the supply curve, not the demand curve.

Question 18

If sellers expect the price of their product to rise in the future, they are likely to _____ in the near term.

Accepted Answer

If sellers expect the price of their product to rise in the future, they are likely to restrict their supply in the near term. By limiting the supply of their product, they can create scarcity and drive up demand, which can lead to higher prices in the future.

Question 19

If there is a surplus in a given market, then

Accepted Answer

When there is a surplus in a given market, it means that the quantity supplied exceeds the quantity demanded. In order to sell the excess supply, producers will lower the price to attract more buyers. As a result, the price will decrease.

Question 20

Alfred Marshall is primarily responsible for developing the

Accepted Answer

Alfred Marshall is known for his work in developing the laws of supply and demand, which describe the relationship between the quantity of a good that producers are willing to sell and the quantity that consumers are willing to buy at a given price. He also popularized the concept of elasticity of demand, which measures how responsive consumers are to changes in price. While Marshall did write about other economic concepts, including the idea of comparative advantage, he is most closely associated with the laws of supply and demand.

Quiz 3: Supply and Demand