Question 1

FIGURE 4-4
 
-Refer to Figure 4-4. Starting with initial curves D₀ and S₀, which movement is consistent with an increase in both demand and supply?

Accepted Answer

The answer of FIGURE 4-4
 
-Refer to Figure 4-4. Starting...

Question 2

TABLE 4-4
 
-Refer to Table 4-4. If the government intervenes in the market for milk and sets a price floor of $1.20, what will be the result?

Accepted Answer

A price floor set above the equilibrium price results in a surplus because the quantity supplied exceeds the quantity demanded at that price.

Question 3

What action by the government will always cause a surplus?

Accepted Answer

A price floor set above the equilibrium price causes a surplus because it sets the minimum price at a level higher than what the market would naturally determine, leading to excess supply as producers are willing to supply more at the higher price, but consumers are not willing to buy as much at that price.

Question 4

Assume a price floor is imposed in the market for milk at the current equilibrium price, and that a price ceiling is imposed in the market for natural gas at the current equilibrium price. What will an increase in demand for both milk and natural gas create?

Accepted Answer

An increase in demand for milk with a price floor set at the current equilibrium price will not create a surplus or shortage since the price cannot decrease; it will increase the quantity traded as suppliers are willing to supply more at the existing price. For natural gas, a price ceiling at the equilibrium price means that when demand increases, the price cannot rise to clear the market, leading to a shortage as the quantity demanded exceeds the quantity supplied.

Question 5

FIGURE 4-4
 
-Refer to Figure 4-4. Starting with initial curves D₀ and S₀, which movement is consistent with a decrease in both demand and supply?

Accepted Answer

Moving from Point A to Point E is consistent with a decrease in both demand and supply. This is because the quantity demanded and supplied decreases, as indicated by the movement along the curves from D₀ and S₀ to D₁ and S₁. Additionally, the equilibrium price decreases, indicating that both demand and supply have decreased. The other answer choices involve movements that are inconsistent with a decrease in both demand and supply, as they either involve an increase in one or both of these factors.

Question 6

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $2.50 per loaf, what will be the result?

Accepted Answer

Since the price ceiling is set above the equilibrium price, it does not affect the market. The equilibrium price of $2.00 is still achievable within the market, meaning supply and demand are unaffected.

Question 7

A March 2009 article in the Zimbabwe Herald indicates that the government there has removed price controls on certain foodstuffs and household items. What result would you expect from this action?

Accepted Answer

Removing price controls would allow market prices to increase to a level where supply and demand are balanced. As a result, firms would have an incentive to increase production to meet the higher demand, and shortages would eventually disappear. However, in the short run, prices are likely to rise as the market adjusts.

Question 8

Assume a price floor is imposed in the wheat market at the equilibrium price, and that a price ceiling is imposed in the gasoline market at the equilibrium price. What will an increase in supply in both the wheat and gasoline markets create?

Accepted Answer

A price floor set at the equilibrium price in the wheat market will not initially create a surplus. However, an increase in supply, with the price unable to fall due to the price floor, will lead to a surplus because the price cannot adjust downward to clear the market. In the gasoline market, a price ceiling set at the equilibrium price will not initially create a shortage. However, an increase in supply will not create a shortage; instead, it will increase the quantity of gasoline traded because the market can absorb the extra supply at the equilibrium price, assuming demand remains constant or increases.

Question 9

TABLE 4-4
 
-Refer to Table 4-4. If the government intervenes in the market for milk and sets a price ceiling of $0.90 per litre, what will be the result?

Accepted Answer

Setting a price ceiling below the equilibrium price would create a shortage of milk where the quantity demanded exceeds the quantity supplied. In this case, the quantity demanded at the price ceiling of $0.90 per litre is 3200 litres, while the quantity supplied is only 2000 litres. Therefore, some consumers will not be able to buy milk at that price, resulting in a shortage of milk. Option A is incorrect as, at a price ceiling, sellers are unable to sell milk above that price rather than below that price. Option C and D are incorrect as the shortage or surplus is not definite or predictable.

Question 10

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases, what will result?

Accepted Answer

When demand increases, the equilibrium price would naturally rise. Since the price floor is at the old equilibrium price, it is now below the new equilibrium price, allowing the market to operate freely. As a result, suppliers will increase the quantity supplied to meet the higher demand.

Question 11

FIGURE 4-5
 
-Refer to Figure 4-5. At price PR, which of the following will occur?

Accepted Answer

At price PR, the quantity demanded (QD) is greater than the quantity supplied (QS), resulting in a shortage. Therefore, the correct choice is C - a shortage equal to 0QD minus 0QS.

Question 12

Assume a price ceiling is imposed at the current equilibrium price in the market for wheat. If the supply of wheat then decreases as a result of bad weather, what will result?

Accepted Answer

A price ceiling creates a situation where the maximum price at which the product can be sold is below the equilibrium price. Since the equilibrium price is the price at which the quantity of wheat demanded equals the quantity of wheat supplied, a price ceiling will likely result in a shortage of wheat. If bad weather then decreases the supply of wheat, this shortage will become even more severe, and a larger quantity of wheat will be demanded than can be supplied at the price ceiling. Thus, a shortage of wheat will be created.

Question 13

In an effort to fight inflation of 18 percent per year in Venezuela, President Hugo Chávez has instituted price controls on most basic foodstuffs. Which of the following is the likely outcome of these price controls?

Accepted Answer

Price controls may lead to artificial demand for basic goods, which could cause supply shortages as producers may choose to sell their goods in other countries or on the black market for higher prices. This has been seen in other countries where price controls were implemented. Therefore, it is likely that there will be shortages of basic foodstuffs in Venezuela.

Question 14

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $1.50 per loaf, what will be the result?

Accepted Answer

The price ceiling of $1.50 per loaf is below the equilibrium price of $2.00 per loaf. This will create a situation where the quantity of bread demanded will exceed the quantity of bread supplied. As a result, there will be a shortage of bread in the market. The quantity of wheat supplied or demanded is not directly affected by the price ceiling on bread. The equilibrium price and quantity of wheat will only be affected if there is a change in the supply or demand for wheat.

Question 15

FIGURE 4-5
 
-Refer to Figure 4-5. What is occurring in the market for gasoline?

Accepted Answer

In the diagram, the price ceiling is set below the equilibrium price, which creates a shortage of gasoline as quantity demanded exceeds quantity supplied. Therefore, choice D is the correct answer.

Question 16

What does the imposition of a price ceiling on a market often result in?

Accepted Answer

The imposition of a price ceiling on a market often results in a shortage, as the maximum price that can be charged is below the equilibrium price, leading to excess demand. This can lead to rationing of goods, black markets, or other negative outcomes.

Question 17

In an effort to fight inflation of 18 percent per year in Venezuela, President Hugo Chávez has instituted price controls on most basic foodstuffs. Which of the following is the likely outcome of these price controls?

Accepted Answer

Price controls often lead to shortages and a decrease in production of the price-controlled items, as firms have less incentive to produce them at the lower price. Instead, they may choose to produce other items that are not subject to price controls. This could ultimately exacerbate the problem of food shortages and inflation.

Question 18

What occurs whenever a price ceiling is imposed in a market?

Accepted Answer

The answer of What occurs whenever a price ceiling is...

Question 19

If the government wants to increase the minimum wage for workers, what type of policy should they implement?

Accepted Answer

To increase the minimum wage for workers, the government should implement a price floor. A price floor is a government-imposed minimum price that must be paid for a good or service. In this case, the minimum wage is the price floor for labor. Setting a higher minimum wage would ensure that workers are paid a certain amount, which may help reduce poverty and increase overall wages. However, it can also lead to some negative effects, such as lower employment and increased prices for consumers.

Question 20

If market demand decreases and market supply increases, what will happen to the equilibrium quantity and equilibrium price?

Accepted Answer

When market demand decreases, the equilibrium quantity will decrease, and when market supply increases, the equilibrium price will decrease. Thus, the equilibrium quantity will be indeterminate, but the equilibrium price will decrease. Therefore, the correct answer is D.

Quiz 4: Bringing Supply and Demand Together

FIGURE 4-4 -Refer to Figure 4-4. Starting with initial curves D₀ and S₀, which movement is consistent with an increase in both demand and supply?

TABLE 4-4 -Refer to Table 4-4. If the government intervenes in the market for milk and sets a price floor of $1.20, what will be the result?

What action by the government will always cause a surplus?

Assume a price floor is imposed in the market for milk at the current equilibrium price, and that a price ceiling is imposed in the market for natural gas at the current equilibrium price. What will an increase in demand for both milk and natural gas create?

FIGURE 4-4 -Refer to Figure 4-4. Starting with initial curves D₀ and S₀, which movement is consistent with a decrease in both demand and supply?

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $2.50 per loaf, what will be the result?

A March 2009 article in the Zimbabwe Herald indicates that the government there has removed price controls on certain foodstuffs and household items. What result would you expect from this action?

Assume a price floor is imposed in the wheat market at the equilibrium price, and that a price ceiling is imposed in the gasoline market at the equilibrium price. What will an increase in supply in both the wheat and gasoline markets create?

TABLE 4-4 -Refer to Table 4-4. If the government intervenes in the market for milk and sets a price ceiling of $0.90 per litre, what will be the result?

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases, what will result?

FIGURE 4-5 -Refer to Figure 4-5. At price PR, which of the following will occur?

Assume a price ceiling is imposed at the current equilibrium price in the market for wheat. If the supply of wheat then decreases as a result of bad weather, what will result?

In an effort to fight inflation of 18 percent per year in Venezuela, President Hugo Chávez has instituted price controls on most basic foodstuffs. Which of the following is the likely outcome of these price controls?

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $1.50 per loaf, what will be the result?

FIGURE 4-5 -Refer to Figure 4-5. What is occurring in the market for gasoline?

What does the imposition of a price ceiling on a market often result in?

In an effort to fight inflation of 18 percent per year in Venezuela, President Hugo Chávez has instituted price controls on most basic foodstuffs. Which of the following is the likely outcome of these price controls?

What occurs whenever a price ceiling is imposed in a market?

If the government wants to increase the minimum wage for workers, what type of policy should they implement?

If market demand decreases and market supply increases, what will happen to the equilibrium quantity and equilibrium price?