Question 1

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 2

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

If demand decreased and supply increased, the equilibrium quantity would remain the same, but the market clearing price would decrease due to the increase in supply. Option A is incorrect because if both demand and supply increased, the equilibrium quantity would increase, and we don't know what would happen to the market clearing price. Option B is incorrect because if both demand and supply decreased, the equilibrium quantity would decrease, and we don't know what would happen to the market clearing price. Option C is incorrect because if demand increased and supply decreased, the market clearing price would increase, not decrease.

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 the firms producing computer chips shut down their facilities for maintenance, the supply of computer chips will decrease. As supply decreases, the equilibrium price will increase and the equilibrium quantity will decrease. Therefore, we can conclude that the correct option is A).

Question 4

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

A recession that reduces consumers' incomes will likely lead to a decrease in demand for computer chips, as fewer people will be able to afford them. This decrease in demand will lead to a decrease in price, as suppliers will need to lower their prices to encourage consumers to purchase their products. Additionally, the decrease in income may also lead to a decrease in production, leading to a decrease in quantity supplied. Therefore, the most likely scenario is a decrease in price and a decrease in quantity.

Question 5

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

An increase in supply at the same time that demand decreases would decrease the price of modems. This is because there are more modems available than people want to buy, so sellers must lower the price to entice buyers.

Question 6

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

The technological advancement will lead to a decrease in production costs, allowing firms to offer chips at a lower price. This will incentivize consumers to demand more chips due to the cheaper price, which will lead to an increase in quantity. Therefore, there will be a decrease in price and an increase in quantity.

Question 7

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

Complementary goods are those goods which are used together, such as peanut butter and jelly. An increase in the price of good X will lead to a decrease in the quantity demanded for good X. As a result, the demand for the complementary good Y will also decrease, leading to a decrease in the price and quantity demanded for good Y. Therefore, the correct answer is (C) a decrease in price and a decrease in quantity.

Question 8

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 dairy product prices will lead to an increase in the cost of producing ice cream, causing a decrease in supply. However, the increase in demand due to high temperatures will lead to an increase in both equilibrium price and quantity. The effect on quantity is indeterminate because the increase in demand may offset the decrease in supply.

Question 9

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 10

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

An increase in supply causes an excess supply, leading to a decrease in price as suppliers try to sell more of their product. This is represented by a rightward shift in the supply curve which results in an increase in quantity supplied and a decrease in price.

Question 11

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 severe drought resulted in a decrease in the supply of cocoa, which is used to produce chocolate. This will increase the cost of producing chocolate chip cookies, leading to an increase in the price of the cookies. As a result, the quantity demanded of chocolate chip cookies is likely to decrease, since consumers will be less willing to pay the higher price. However, there will not be a surplus of cookies because the decrease in supply will help match the lower quantity demanded.

Question 12

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

When there is an increase in demand and a decrease in supply, the price will generally increase due to the increased competition from the higher demand. However, the effect on quantity is indeterminate because it will depend on the magnitude of the change in demand and supply. If the increase in demand is greater than the decrease in supply, then both price and quantity will increase. If the decrease in supply is greater than the increase in demand, then both price and quantity will decrease.

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

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 demand and an increase in supply will cause an increase in quantity, as both demand and supply are pushing quantity up. However, the effect on price is indeterminate, as the increase in demand is pushing prices up, while the increase in supply is pushing prices down. The final outcome will depend on the relative strength of the two effects.

Question 15

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 the workers' wages will lead to an increase in production costs for the automobile industry, which may lead to an increase in the price of new cars. However, the increase in the number of licensed drivers in the market for a new car will increase the demand for new cars. The net effect of these changes on the equilibrium price of new cars is indeterminate, but it is likely that the price will increase. The effect on the quantity is also indeterminate, as it depends on the magnitude of the shifts in both supply and demand. Therefore, B is the best choice.

Question 16

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

Since goods X and Y are complementary goods, a decrease in the price of good X will lead to an increase in the demand for good X, which in turn will lead to an increase in the demand for good Y. As the demand for good Y increases, the price of good Y will increase, and the quantity demanded will also increase. Therefore, the best choice is B, an increase in price and an increase in quantity.

Question 17

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 18

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 increase in market clearing price implies that the quantity of corn demanded is greater than the quantity of corn supplied. Therefore, a reduction in supply could have caused this change as there is now less corn available for buyers to purchase. A reduction in demand (choice A) would result in a decrease in market clearing price, as buyers are less willing to pay for the good. An increase in quantity demanded (choice C) would lead to an increase in both price and quantity supplied. An increase in quantity supplied (choice D) would lead to an increase in quantity and a decrease in price.

Question 19

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

A decrease in equilibrium quantity can only happen if there is a decrease in demand or an increase in supply. Neither an increase in quantity demanded nor an increase in quantity supplied can cause a decrease in equilibrium quantity.

Question 20

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 there is a decrease in demand and an increase in supply, it is certain that the price will decrease. However, the effect on quantity is indeterminate because the decrease in demand may be significant enough to offset the increase in supply, resulting in a decrease in quantity. Alternatively, the increase in supply may be significant enough to offset the decrease in demand, resulting in an increase in quantity. Therefore, the effect on quantity cannot be determined with certainty.

Quiz 4: Extensions of Demand and Supply Analysis

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

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?

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

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

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

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

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

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:

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?

An increase in supply causes

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

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

An increase in demand and an increase 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

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

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

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

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