Question 1

(Consider This) A primary advantage of Uber to government-regulated taxis is that

Accepted Answer

Uber's dynamic pricing allows for flexible pricing that adjusts to supply and demand, which avoids inefficiencies caused by regulated taxi fares. Traditional taxis are subject to fixed pricing determined by government regulations, which means that they cannot adjust their prices to match demand. Uber's pricing structure allows them to increase prices during peak demand, encouraging more drivers to come onto the market, and thus, improving efficiency.

Question 2

(Consider This) Uberâ€™s dynamic pricing

Accepted Answer

Uber's dynamic pricing adjusts fares based on supply and demand in real-time, which helps keep the market in equilibrium and allows for more efficient use of available transportation resources. While it may result in higher fares during peak demand times, it also encourages more drivers to become available to meet increased demand. This helps prevent long wait times for riders, making the service more convenient and reliable overall. While some consumers may feel that the pricing is unfair, it is ultimately determined by market conditions, and riders have the option to accept or decline a fare before booking the ride.

Question 3

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. If demand changed from P = 100 - 2Q to P = 130 - Q, the new equilibrium price is

Accepted Answer

To find the new equilibrium price, we need to set the new demand equation equal to the supply equation and solve for Q. Thus, we have:

130 - Q = 10 + 4Q

Simplifying, we get:

5Q = 120

Q = 24

Now that we know Q, we can plug it into either the new demand equation or the supply equation to find the equilibrium price. Let's use the supply equation:

P = 10 + 4Q

P = 10 + 4(24)

P = 106

Therefore, the new equilibrium price is $106.

Question 4

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. If demand changes from P = 100 - 2Q to P = 130 - Q, the new equilibrium quantity is

Accepted Answer

To find the new equilibrium quantity, we need to find the intersection point of the new demand and supply curve.

The new demand curve is P = 130 - Q, which means we can find the new quantity demanded by setting this equal to the original supply equation and solving for Q:
130-Q = 10 + 4Q
Simplifying: 130 = 10 + 5Q
Solving for Q: Q = 24

Therefore, the new equilibrium quantity is 24.

Question 5

An effective price floor will

Accepted Answer

An effective price floor is set above the equilibrium price, leading to a surplus because the quantity supplied exceeds the quantity demanded at that price.

Question 6

Black markets are associated with

Accepted Answer

Black markets usually arise when there are government price controls in place, such as ceiling prices that create product shortages.

Question 7

Price floors and ceiling prices both

Accepted Answer

Price floors and ceiling prices interfere with the rationing function of prices by artificially setting a minimum or maximum price above or below the equilibrium price determined by supply and demand. This can lead to inefficiencies and distortions in the market, such as surpluses or shortages.

Question 8

Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that

Accepted Answer

The decrease in production costs would lead to an increase in supply, which would typically lead to a decrease in equilibrium price and an increase in equilibrium quantity. However, since the equilibrium price and quantity have both increased, it indicates that the demand for clothing has grown faster than the increase in supply, resulting in a shift of the demand curve to the right.

Question 9

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. The equilibrium price is

Accepted Answer

Set the demand and supply equations equal to each other and solve for Q:
100 - 2Q = 10 + 4Q
90 = 6Q
Q = 15
Substitute Q = 15 into either the demand or supply equation to find P:
P = 100 - 2Q = $70 (or P = 10 + 4Q = $70)
Therefore, the equilibrium price is $70, so the answer is B.

Question 10

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

Accepted Answer

Rent controls have been found to have negative consequences on housing availability, quality, and even the type of buildings constructed. Landlords may choose to sell or convert their property to avoid the restrictions on rental income. Additionally, with reduced income, landlords may lack the funds and incentive to maintain housing quality, leading to a decline in the condition of rental properties. Finally, if there is no profit to be made in rental housing, developers may choose to construct non-residential buildings instead, further reducing the availability of affordable rental housing.

Question 11

An effective price ceiling will

Accepted Answer

An effective price ceiling is a legally imposed maximum price that is below the market equilibrium price. This price ceiling will result in a product shortage because the quantity demanded will exceed the quantity supplied. As a result, consumers will be willing to pay the maximum price allowed by the price ceiling but suppliers will not be willing to produce and sell those goods at that price. Therefore, a shortage will occur where the quantity demanded exceeds the quantity supplied. The other options, inducing new firms to enter the industry, resulting in a product surplus, or clearing the market are not characteristics of an effective price ceiling.

Question 12

If a legal ceiling price is set above the equilibrium price,

Accepted Answer

When a legal ceiling price is set above the equilibrium price, it does not affect the market because the market can naturally settle at the equilibrium price, which is lower than the ceiling. This means transactions can occur without any interference from the ceiling price, leaving both the equilibrium price and quantity unchanged.

Question 13

A price ceiling means that

Accepted Answer

A price ceiling is a legal maximum price set by the government below the equilibrium price. The intention of a price ceiling is typically to protect consumers from high prices, but it can lead to shortages and a distortion of the market. A price ceiling is not related to a surplus or deflationary spiral, and it is not above the equilibrium price.

Question 14

If an effective ceiling price is placed on hamburgers, then

Accepted Answer

An effective ceiling price is set below the market-clearing price, leading to a shortage where demand exceeds supply, and potentially resulting in a black market.

Question 15

(Advanced analysis) The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. The equilibrium quantity is

Accepted Answer

To find the equilibrium quantity, we need to find the quantity at which the demand and supply curves intersect.

Setting the demand equation equal to the supply equation: 
100 - 2Q = 10 + 4Q

Solving for Q: 
90 = 6Q 
Q = 15

So the equilibrium quantity is 15.

Question 16

An effective price floor on wheat will

Accepted Answer

An effective price floor on wheat would set a minimum price above the equilibrium price. This would lead to a surplus of wheat since producers would be willing to supply more than consumers would be willing to buy at the higher price. Therefore, choice C is the correct answer.

Question 17

A price floor means that

Accepted Answer

A price floor is a minimum legal price that is set by the government, typically above the equilibrium price, in order to ensure that producers receive a certain minimum price for their goods or services. This can lead to surplus supply and deadweight loss if the minimum price is set too high, but can also benefit producers who may otherwise be unable to compete in the market.

Question 18

Which of the following statements is true about price ceilings?

Accepted Answer

Price ceilings create a situation where the legally determined price is below the market equilibrium price. This creates excess demand, leading to shortages. To allocate the limited supply of goods, rationing occurs through methods like waiting in lines, lotteries or by some other means than legally determined market prices. However, price ceilings do not necessarily create surpluses for goods or shortages for services as it depends on the specific market conditions. Ration coupons are not the only way to ration goods when price ceilings are in place.

Question 19

(Consider This) Dynamic pricing refers to

Accepted Answer

Dynamic pricing refers to the ability to set equilibrium prices in real time in response to changing supply and demand conditions. This means that prices are adjusted depending on factors like time of day or week, availability of goods, and consumer demand. It is commonly used in industries such as transportation, hospitality, and online retail.

Question 20

(Consider This) Surge prices

Accepted Answer

Surge prices reflect greater anticipated demand for rides during peak times, and as a result, elicit a greater quantity supplied of drivers, increasing the supply of rides available. It does not create shortages or surpluses in the ride market, and it does not directly increase the demand for rides.

Quiz 3: Demand, Supply, and Market Equilibrium