Question 1

A "twofold" change is when

Accepted Answer

The answer of A "twofold" change is when
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Question 2

When both curves shift

Accepted Answer

When both curves shift, we cannot predict the exact change in equilibrium price and quantity, so either equilibrium price or equilibrium quantity is indeterminate, but we cannot predict which one. Therefore, option D is the most appropriate choice.

Question 3

What would we expect to happen to the price of bagels if the price of flour decreased and the price of cream cheese decreased?

Accepted Answer

A decrease in the price of flour (a key input in bagel production) would likely lead to a decrease in production costs for bagels, potentially increasing the supply of bagels. Similarly, a decrease in the price of cream cheese (a complementary good) could increase the demand for bagels. Both effects would lead to an increase in the equilibrium quantity of bagels. However, the effect on the equilibrium price of bagels is indeterminate without knowing the relative magnitudes of the shifts in supply and demand.

Question 4

If the price and quantity for an inferior good,Good X,is $8 and 6 units at the original equilibrium,what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant?

Accepted Answer

Since Good X is an inferior good, an increase in income will lead to a decrease in demand for Good X. As a result, the new equilibrium will have a lower quantity demanded and a lower price. Option C is the only choice that satisfies this condition.

Question 5

Which of the following scenarios best describes the change in the equilibrium shown in the accompanying graph?

Accepted Answer

The equilibrium price decreases and the equilibrium quantity decreases, which suggests that there has been a decrease in demand or an increase in supply. The only option that fits this description is firms leaving the market, as this would cause a decrease in supply and a shift to the left in the supply curve, resulting in a lower equilibrium quantity and price.

Question 6

When both supply and demand decrease,the equilibrium price ________ and equilibrium quantity ________.

Accepted Answer

When both supply and demand decrease, the effect on equilibrium price is indeterminate because the decrease in supply tends to increase price, while the decrease in demand tends to decrease price. However, the equilibrium quantity will definitely decrease because both the decrease in supply and demand lead to a lower quantity being traded.

Question 7

When both supply and demand shift to the left,the equilibrium

Accepted Answer

When both supply and demand shift to the left, it becomes clear that both the quantity supplied and demanded have decreased, leading to a shortage. As a result, the equilibrium quantity will surely fall. However, the effect of the shift on the price depends on the relative size of the shifts in supply and demand. If the shift in the demand curve is more prominent than the shift in the supply curve, the price will rise, and if the shift in the supply curve is greater than the shift in the demand curve, the price will fall. However, if both shifts are of equal magnitude, the price will remain unchanged (as in the case of a simultaneous 10% reduction in both demand and supply). Regardless, since both the quantity supplied and demanded have decreased as a result of the shift, the equilibrium quantity will decrease.

Question 8

According to a supply and demand model for apples,if the average household income decreases at the same time 10 apple orchards go out of business,one would expect the equilibrium

Accepted Answer

A decrease in household income reduces demand, while the closure of orchards reduces supply. The equilibrium quantity will decrease, but the effect on price is indeterminate as it depends on the relative shifts in supply and demand.

Question 9

Leading economic indicators suggest that incomes will be going up next year.In response to these reports,companies are forecasting increased prices for future sales of their goods.As a result of these increases,the supply curve will

Accepted Answer

When companies forecast increased prices for future sales due to expected higher incomes, they anticipate higher demand. This anticipation might lead them to reduce the quantity supplied at current prices or increase prices, effectively shifting the supply curve to the left. A leftward shift in the supply curve, with demand holding or increasing, typically causes the equilibrium price to increase because the quantity of goods available at previous prices has decreased, leading to higher prices for the available supply.

Question 10

The change in an equilibrium value is sometimes indeterminate due to the fact that

Accepted Answer

When both demand and supply can increase or decrease, the net effect on equilibrium depends on the relative magnitudes of these changes, making the outcome indeterminate.

Question 11

When people move to an area of the world that was previously unpopulated,we expect more consumers and more producers to spring up in that area.What would we expect to happen to the price and quantity in the markets where this happens?

Accepted Answer

When people move to a previously unpopulated area, the increase in consumers leads to higher demand, while the increase in producers leads to higher supply. The equilibrium quantity will go up due to both increased supply and demand. However, the effect on equilibrium price is indeterminate without knowing the relative changes in supply and demand.

Question 12

Spam is considered an inferior good.What would happen to the equilibrium price and quantity of Spam if income decreased and more firms started producing Spam?

Accepted Answer

When income decreases, demand for an inferior good like Spam increases, pushing both price and quantity up. However, if more firms start producing Spam, the supply increases, which tends to lower the price but increase the quantity. The overall effect on price is indeterminate because one factor pushes it up (increased demand) and the other pushes it down (increased supply), but the quantity will definitely go up due to both increased demand and increased supply.

Question 13

During the winter months,many elderly people leave their homes in northern New York and travel south to Florida or Arizona.What would we expect to happen to the equilibrium price and quantity of items most used by the elderly in northern New York?

Accepted Answer

The shift in demand towards warm climate areas would decrease the demand for items most used by the elderly in northern New York. As a result, the equilibrium price and quantity would both decrease.

Question 14

When both supply and demand shift to the right,equilibrium

Accepted Answer

When both supply and demand increase (shift to the right), the equilibrium quantity always rises because there is more being supplied and more being demanded. The effect on price is indeterminate without knowing the relative magnitudes of the shifts in supply and demand.

Question 15

In one year,15 bowling alleys opened in California.During that same year,ESPN started broadcasting professional bowling on TV,which sparked more interest in the sport.What would we expect to happen to the price and quantity of a game of bowling in California during that year?

Accepted Answer

The increase in bowling alleys suggests an increase in supply, while the increased interest due to ESPN broadcasting suggests an increase in demand. The equilibrium quantity will likely go up due to both increased supply and demand, but the effect on equilibrium price is indeterminate as it depends on the relative magnitudes of the shifts in supply and demand.

Question 16

What would happen to the equilibrium price and quantity for the market for cigarettes if the government increased the tax and a scientific study came out confirming that smoking cigarettes increased the rate of heart disease?

Accepted Answer

The government increasing the tax on cigarettes would likely lead to a higher price for consumers, decreasing demand. The scientific study would also decrease demand by discouraging smoking. Both factors would decrease the quantity demanded. The price effect is indeterminate because the tax could push the price up, but decreased demand could pull it down.

Question 17

With no barriers to entry or exit and when firms in a market are operating at a loss,we can expect other firms to exit,causing the ________ curve to shift to the ________ and making the equilibrium price ________ and the equilibrium quantity ________.

Accepted Answer

When firms exit the market due to losses, the supply curve shifts to the left, leading to an increase in equilibrium price and a decrease in equilibrium quantity.

Question 18

The government offers numerous educational subsidies through grants and low-cost equipment to schools.They also provide a lot of incentives to go to school.Because of this,we expect that the equilibrium price of education will ________ and the equilibrium quantity of students will ________.

Accepted Answer

Subsidies and incentives lower the cost of education for students and increase demand, leading to a higher quantity of students. However, the effect on price is indeterminate without knowing how supply responds.

Question 19

If the price and quantity for a normal good,Good X,is $8 and 6 units at the original equilibrium,what is one possibility for the new equilibrium of Good X if we see income increase and all other factors stay constant?

Accepted Answer

An increase in income would shift the demand curve for Good X to the right. This means consumers are willing and able to buy more Good X at every price level. As a result, both the price and quantity of Good X will increase. Choice B ($10 and 8 units) represents an increase in both price and quantity, making it the most plausible option.

Question 20

Many consumer items eventually go out of style,and because fewer people want these items,demand for them drops.When this happens,we usually see production of these items stop.What happens to the equilibrium price and equilibrium quantity in a market like this?

Accepted Answer

The answer of Many consumer items eventually go out of...

Quiz 3: The Market at Work: Supply and Demand