Question 1

If supply decreases along a given demand curve, ______.

Accepted Answer

If supply decreases along a given demand curve, the quantity supplied at the original equilibrium price is less than the quantity demanded, resulting in an excess quantity demanded in the market. This leads to an increase in the equilibrium price and a decrease in the equilibrium quantity as buyers are willing to pay more for the limited supply.

Question 2

The following figure shows the market for a good. Which of the following is most likely to shift demand from D' to D?

Accepted Answer

The answer of The following figure shows the market for...

Question 3

Consider the market for a good that is initially in equilibrium. Which of the following is most likely to happen if supply increases by a smaller amount than the increase in demand?

Accepted Answer

When demand increases more than supply, it puts upward pressure on both the price and quantity, as the demand curve shifts to the right more significantly than the supply curve does. This results in a higher equilibrium price and quantity.

Question 4

In which of the following situations is the change in the equilibrium price of a good indeterminate?

Accepted Answer

When demand remains constant and supply increases, the equilibrium price may increase, decrease, or remain the same depending on the magnitude of the change in supply and the elasticity of both supply and demand.

Question 5

Suppose the market for beef cattle was initially in equilibrium .An increase in the price of the fodder used to feed cattle would cause:

Accepted Answer

An increase in the price of fodder used to feed cattle will increase the cost of production for beef cattle farmers, leading to a decrease in the supply of beef cattle in the long run. This is because some farmers may choose to exit the market due to the increased cost of production. As a result, the equilibrium price of beef will increase due to the decrease in supply. Therefore, B is the best answer option. Options A, C, D, and E are incorrect as they do not accurately describe the impact of an increase in fodder price on the market for beef cattle.

Question 6

Consider the market for a good that is in equilibrium. Which of these is most likely to occur if both demand and supply for this good decrease during a particular point in time?

Accepted Answer

With a decrease in both demand and supply, the equilibrium point will shift leftward. As a result, the equilibrium quantity will decrease, but the direction of the equilibrium price shift depends on the relative magnitude of the shifts in demand and supply. Since the question doesn't provide any information about which shift is greater, we cannot determine whether the price will increase or decrease. However, we can conclude that the equilibrium quantity will decrease, making choice (D) the most likely outcome.

Question 7

Identify the effect of a reduction in the price of steel on the equilibrium price and quantity of automobiles, for a given demand curve.

Accepted Answer

A reduction in the price of steel will reduce the production cost of automobiles. This will shift the supply curve of automobiles to the right, leading to an increase in equilibrium quantity. Since the reduction in production costs also means that the suppliers can offer the automobiles at a lower price, the equilibrium price will decrease. Therefore, the effect of a reduction in the price of steel on the equilibrium price and quantity of automobiles is a decrease in equilibrium price and an increase in equilibrium quantity.

Question 8

In the market for chewing gum, the current price is 50 cents per pack and 100,000 packs are sold. Which of the following events is most likely to result in a new equilibrium price of 60 cents and quantity of 90,000 packs?

Accepted Answer

An increase in the price of the ingredients used to make chewing gum would increase the cost of producing chewing gum. As a result, the supply curve would shift to the left, and the equilibrium price would increase. At the same time, the decrease in supply would cause the equilibrium quantity to decrease. Together, these shifts in the supply and demand curves would result in a new equilibrium price of 60 cents and quantity of 90,000 packs. The other events listed would have either no effect or a minimal effect on the market for chewing gum.

Question 9

Two events occur simultaneously in the market for automobiles: (1) an improvement in assembly line technology and (2) a recession in the economy that decreases consumers' income. Which of the following can be predicted about this market with certainty?

Accepted Answer

The answer of Two events occur simultaneously in the market...

Question 10

A new cattle feed has been found to increase the amount of milk each cow produces. Which of these is a likely impact in the market for milk, if this cattle feed is used by most of the dairies?

Accepted Answer

With an increase in milk production due to the new cattle feed, the supply of milk will increase, leading to a rightward shift in the supply curve for milk. This will result in a higher quantity of milk supplied at each price level. As a result, the market equilibrium price for milk is likely to fall or remain unchanged, making it more affordable to consumers.

Question 11

If both demand and supply increases in a market that is initially in equilibrium, price will:

Accepted Answer

When both demand and supply increase, the effect on price depends on the relative magnitude of their increases. If demand increases more than supply, it puts upward pressure on price, leading to an increase in price.

Question 12

For a downward-sloping demand curve, a rightward shift of a supply curve:

Accepted Answer

A rightward shift in the supply curve results in a decrease in equilibrium price and an increase in equilibrium quantity for a downward-sloping demand curve. This occurs because the increase in supply results in a surplus of goods, causing competition among suppliers, which drives down the price. As the price decreases, consumers demand a higher quantity of goods, resulting in an increase in equilibrium quantity.

Question 13

The figure given below shows the market for a good. Which of the following is least likely to shift demand from D to D'?

Accepted Answer

The answer of The figure given below shows the market...

Question 14

Consider the market for wheat that is initially in equilibrium. In which of the following situations will the equilibrium price of wheat increase and the change in the equilibrium quantity of wheat be indeterminate?

Accepted Answer

When supply declines and demand rises, the equilibrium price of wheat will increase because the reduced supply pushes prices up and the increased demand also pushes prices up. The change in the equilibrium quantity is indeterminate because the decrease in quantity due to lower supply and the increase in quantity due to higher demand work in opposite directions, making the net effect on quantity unclear without more information.

Question 15

In the table given below, which of the following statements is correct regarding the market for corn?

Accepted Answer

The answer of In the table given below, which of...

Question 16

For a given downward-sloping demand curve, a decrease in supply will cause a(n):

Accepted Answer

The answer of For a given downward-sloping demand curve, a...

Question 17

Over the last few years, demand for DVDs has increased, but their equilibrium price has fallen. Which of the following, if true, best explains this situation?

Accepted Answer

An increase in the supply of DVDs more than the increase in demand would lead to a higher quantity being available in the market, which could cause the equilibrium price to fall, even if the demand has increased. This scenario aligns with the observed situation where demand for DVDs has increased, but their equilibrium price has fallen.

Question 18

If demand increases and supply decreases in a market that is in equilibrium, quantity will:

Accepted Answer

When demand increases and supply decreases in a market that is in equilibrium, the price will increase. However, it is uncertain whether the quantity will increase or decrease, as it depends on the magnitude of the changes in demand and supply. If the increase in demand is greater than the decrease in supply, then quantity will increase. If the decrease in supply is greater than the increase in demand, then quantity will decrease. However, if the changes are equal, then quantity will remain unchanged. Therefore, option D is the best choice.

Question 19

If demand decreases and supply increases in a market that is initially in equilibrium,

Accepted Answer

When demand decreases, consumers are willing to buy less at each price, shifting the demand curve to the left. When supply increases, producers are willing to sell more at each price, shifting the supply curve to the right. Both of these changes put downward pressure on the price, leading to a decrease in price.

Question 20

Consider the market for a good that is initially in equilibrium. Which of these is most likely to occur if both demand and supply for this good increases during a particular point in time?

Accepted Answer

When both demand and supply increase, the equilibrium price will depend on the magnitude of the shift in demand and supply. However, the equilibrium quantity will definitely increase as both buyers and sellers are willing to exchange more of the good at the prevailing price. Therefore, the most likely outcome is an increase in equilibrium quantity.

Quiz 4: Demand, Supply, and Markets