Question 1

An increase in supply causes
A)quantity supplied to decrease.
B)supply and price to increase.
C)price to decrease.
D)price to increase.

Accepted Answer

According to the law of supply, an increase in supply results in a decrease in price. This is because there are more goods available for purchase, and sellers may have to lower their prices to entice buyers to purchase their goods instead of competitors' goods. Therefore, the correct choice is C, price to decrease.

Question 2

The market clearing price of corn has just increased. Which of the following could have caused this change?
A)a reduction in demand
B)a reduction in supply
C)an increase in quantity demanded
D)an increase in quantity supplied

Accepted Answer

A reduction in supply would lead to a decrease in the quantity of corn available in the market, which in turn could cause the market clearing price of corn to increase. The other options (A, C, and D) would not directly cause an increase in market clearing price.

Question 3

Firms that produce 80 percent of all computer chips have shut down their facilities for maintenance. In the computer chip market this will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

When 80 percent of firms shut down their facilities for maintenance, the supply of computer chips will decrease, causing a shift to the left in the supply curve. This will lead to an increase in price, as some consumers will be willing to pay a higher price for the limited supply. Additionally, since the supply has decreased, the quantity of computer chips in the market will decrease. Therefore, choice A is correct. Choices B, C, and D are incorrect, as they suggest either an increase in supply or a decrease in price, which is unlikely to occur in this situation.

Question 4

A technological advancement has just occurred in the computer chip industry. In the computer chip market this will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

With a technological advancement in the computer chip industry, the cost of producing each chip will decrease. As a result, the supply curve will shift to the right, leading to an increase in quantity. Additionally, the decreased cost of production will lead to a decrease in price as well. Therefore, the correct choice is D - a decrease in price and an increase in quantity.

Question 5

A decrease in demand and an increase in supply will lead to
A)unambiguous increases in both price and quantity.
B)unambiguous decreases in both price and quantity.
C)an unambiguous decrease in price, but the effect on quantity is indeterminate.
D)an unambiguous decrease in quantity, but the effect on price is indeterminate.

Accepted Answer

When demand decreases and supply increases, the price will generally decrease, but the effect on quantity is uncertain. It is possible that the increase in supply will offset the decrease in demand, resulting in no change in quantity.

Question 6

The economy is undergoing a recession that has reduced consumers' incomes. In the computer chip market, this will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

The reduction in consumers' incomes will lead to a decrease in demand for computer chips. As a result, the computer chip market will experience a decrease in both price and quantity demanded. The decrease in quantity supplied may not be immediate as companies may still have inventory to sell, but eventually, they will need to reduce their production to match the lower demand. Thus, the answer is a decrease in price and a decrease in quantity, which is option C.

Question 7

Suppose the equilibrium quantity of ethanol has decreased. Which of the following could have caused this change?
A)a decrease in demand
B)an increase in supply
C)an increase in quantity demanded
D)an increase in quantity supplied

Accepted Answer

If the equilibrium quantity of ethanol decreases, then it means that either the demand for ethanol has decreased or the supply of ethanol has decreased. Out of the options given, only option A represents a decrease in demand, which can lead to a decrease in equilibrium quantity. Option B represents an increase in supply, which would lead to an increase in equilibrium quantity. Options C and D represent changes in quantity demanded and supplied, but they do not actually explain what caused the decrease in equilibrium quantity. Therefore, A is the best choice.

Question 8

A severe drought has devastated cocoa plants, causing an increase in the price of chocolate. In the market for chocolate chip cookies
A)a surplus will arise.
B)supply has decreased and price has increased.
C)quantity has decreased and price has decreased.
D)quantity demanded has increased.

Accepted Answer

The decrease in cocoa plants affects the supply of chocolate, which is an ingredient in chocolate chip cookies. As a result, the supply for chocolate chips will decrease, causing the price of chocolate chips to increase. This will lead to an increase in the cost of producing chocolate chip cookies and therefore, the price of chocolate chip cookies will also increase. A surplus will not arise as the supply has decreased. The quantity demanded will not increase as the increase in price will lead to a decrease in quantity demanded.

Question 9

Following adjustments to a new equilibrium in a market, the equilibrium quantity remains unchanged, but the market clearing price is now lower. Which of the following could definitely have caused this outcome?
A)Demand and supply both increased.
B)Demand and supply both decreased.
C)Demand increased, and supply decreased.
D)Demand decreased, and supply increased.

Accepted Answer

The answer of Following adjustments to a new equilibrium in...

Question 10

An increase in demand and an increase in supply will lead to
A)unambiguous increases in both price and quantity.
B)unambiguous decreases in both price and quantity.
C)an unambiguous increase in quantity, but the effect on price is indeterminate.
D)an unambiguous increase in price, but the effect on quantity is indeterminate.

Accepted Answer

An increase in both demand and supply will lead to an unambiguous increase in quantity, as both sides are willing to exchange more goods at the market price. However, the effect on price is indeterminate since it depends on the magnitude of the increase in demand and supply. If the increase in demand is greater than the increase in supply, the price will increase. Conversely, if the increase in supply is greater than the increase in demand, the price will decrease. Therefore, the answer is C.

Question 11

A decrease in demand and a decrease in supply will lead to
A)unambiguous increases in both price and quantity.
B)unambiguous decreases in both price quantity.
C)an unambiguous decrease in price, but the effect on quantity is indeterminate.
D)an unambiguous decrease in quantity, but the effect on price is indeterminate.

Accepted Answer

A decrease in demand leads to a lower equilibrium price and quantity. A decrease in supply leads to a higher price but a lower quantity. The combined effect is unambiguously a decrease in quantity, but the effect on price is indeterminate because the demand and supply shifts work in opposite directions on price.

Question 12

Goods X and Y are complementary goods. A decrease in price of good X has occurred. In the market for good Y, this will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

Complementary goods are goods that are typically consumed together. A decrease in the price of good X will lead to an increase in demand for good X, which will lead to an increase in the demand for good Y. Since good Y is complementary to good X, an increase in demand for good Y will naturally increase the price of good Y. Additionally, the increase in demand for good Y will also lead to an increase in the quantity demanded of good Y. Therefore, the correct answer is B.

Question 13

More farmers have recently entered the corn industry. In addition there has been a technological advancement in the fertilizer industry providing corn farmers with a cheaper and a more effective fertilizer. In the market for corn, the effects these changes will have on the equilibrium price and quantity are
A)price will increase, and quantity will decrease.
B)price will increase, and the effect on quantity is indeterminate.
C)price will decrease, and quantity will increase.
D)price will decrease, and the effect on quantity is indeterminate.

Accepted Answer

The entry of more farmers into the corn industry increases the supply of corn, and the technological advancement in the fertilizer industry reduces the cost of production, further increasing the supply. Both factors lead to a decrease in the price of corn and an increase in the quantity sold, as more supply lowers prices and makes more quantity available at lower prices.

Question 14

There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are
A)price will increase, and quantity will decrease.
B)price will increase, and the effect on quantity is indeterminate.
C)price will decrease, and quantity will increase.
D)price will decrease, and the effect on quantity is indeterminate.

Accepted Answer

The increase in the price of dairy products will shift the supply curve of ice cream to the left, causing a decrease in quantity supplied and an increase in price. On the other hand, the increase in demand due to high temperatures will shift the demand curve to the right, causing an increase in both price and quantity. The net effect on quantity is indeterminate, but the price will definitely increase.

Question 15

An increase in demand and a decrease in supply will lead to an
A)unambiguous increases in both price and quantity.
B)unambiguous decreases in both price and quantity.
C)an unambiguous increase in quantity, but the effect on price is indeterminate.
D)an unambiguous increase in price, but the effect on quantity is indeterminate.

Accepted Answer

An increase in demand would lead to an increase in both price and quantity, while a decrease in supply would lead to a decrease in both price and quantity. Therefore, the simultaneous occurrence of an increase in demand and a decrease in supply would result in an increase in price but the effect on quantity produced and sold is indeterminate.

Question 16

Following adjustments to a new equilibrium in a market, the market clearing price remains unchanged, but the equilibrium quantity is now lower. Which of the following could definitely have caused this outcome?
A)Demand and supply both increased.
B)Demand and supply both decreased.
C)Demand increased, and supply decreased.
D)Demand decreased, and supply increased.

Accepted Answer

When both demand and supply decrease, the equilibrium quantity will decrease. The market clearing price can remain unchanged if the decreases in demand and supply are proportionate, leading to a new equilibrium point at a lower quantity but the same price.

Question 17

Goods X and Y are complementary goods. An increase in the price of good X has occurred. In the market for good Y this will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

When the price of good X increases, the demand for its complementary good Y decreases, leading to a decrease in both the price and quantity of good Y.

Question 18

In the automobile industry, workers have just negotiated a new contract giving workers a large raise. There has also been an increase in the number of licensed drivers who are in the market for a new car. In the market for new automobiles, the effects that these changes will have on the equilibrium price and quantity are
A)price will increase, and quantity will decrease.
B)price will increase, and the effect on quantity is indeterminate.
C)price will decrease, and quantity will increase.
D)price will decrease, and the effect on quantity is indeterminate.

Accepted Answer

The increase in workers' wages is likely to increase the cost of production for automobiles, which could increase the price of new cars. However, the increase in the number of licensed drivers in the market for a new car could also increase the quantity demanded, which could offset the price increase. Therefore, the effect on quantity is indeterminate.

Question 19

Chocolate has just been found to increase your expected life span by 5 years if you eat it every day. In the market for chocolate, this information will lead to
A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Accepted Answer

The increase in demand due to the health benefit will lead to an increase in quantity supplied and an increase in price as suppliers try to capitalize on the increased demand.

Question 20

The market clearing price of computer modems has just decreased. Which of the following could have caused this change?
A)a decrease in supply at the same time that demand increases
B)an increase in supply at the same time that demand decreases
C)a decrease in supply with demand unchanged
D)an increase in demand with supply unchanged

Accepted Answer

When there is an increase in supply at the same time that demand decreases, the market clearing price for computer modems will decrease. This is because at the new supply level, producers will be willing to sell the modems at a lower price to attract consumers who may be less willing to buy at the current demand level. This will lead to a decrease in the market clearing price.

Quiz 4: Extensions of Demand and Supply Analysis

An increase in supply causes

The market clearing price of corn has just increased. Which of the following could have caused this change?

Firms that produce 80 percent of all computer chips have shut down their facilities for maintenance. In the computer chip market this will lead to

A technological advancement has just occurred in the computer chip industry. In the computer chip market this will lead to

A decrease in demand and an increase in supply will lead to

The economy is undergoing a recession that has reduced consumers' incomes. In the computer chip market, this will lead to

Suppose the equilibrium quantity of ethanol has decreased. Which of the following could have caused this change?

A severe drought has devastated cocoa plants, causing an increase in the price of chocolate. In the market for chocolate chip cookies

Following adjustments to a new equilibrium in a market, the equilibrium quantity remains unchanged, but the market clearing price is now lower. Which of the following could definitely have caused this outcome?

An increase in demand and an increase in supply will lead to

A decrease in demand and a decrease in supply will lead to

Goods X and Y are complementary goods. A decrease in price of good X has occurred. In the market for good Y, this will lead to

There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are

An increase in demand and a decrease in supply will lead to an

Following adjustments to a new equilibrium in a market, the market clearing price remains unchanged, but the equilibrium quantity is now lower. Which of the following could definitely have caused this outcome?

Goods X and Y are complementary goods. An increase in the price of good X has occurred. In the market for good Y this will lead to

Chocolate has just been found to increase your expected life span by 5 years if you eat it every day. In the market for chocolate, this information will lead to

The market clearing price of computer modems has just decreased. Which of the following could have caused this change?