Question 1

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?
A) a decrease in the price of flour
B) an increase in the price of flour
C) an increase in the price of rye bread, a substitute for white bread
D) an increase in the price of butter, a complement for white bread

Accepted Answer

A decrease in the price of flour, a key ingredient in making white bread, would cause the production costs of white bread to decrease. This would lead to a decrease in the equilibrium price of white bread and an increase in the equilibrium quantity of white bread as producers would want to supply more at a lower cost.

Question 2

Consider the collectors' market for first editions of two popular children's books, Harry Potter and the Order of the Phoenix by J. K. Rowling and Ruby in the Smoke by Philip Pullman. Sales of the Harry Potter novel are much greater than sales of Ruby in the Smoke yet the price of the Harry Potter novel is much lower than the price of Pullman's novel.
a. On one large diagram, draw a demand and supply graph for first editions of Harry Potter and the Order of the Phoenix and another demand and supply graph for first editions of Ruby in the Smoke.
b. Show how it is possible for the price of the Harry Potter novel to be much lower than the price of Pullman's novel, even though the demand for the Harry Potter novel is much greater than the demand for Ruby in the Smoke.
c. Provide a written explanation to accompany your graphical illustration.

Accepted Answer

The answer of Consider the collectors' market for first editions...

Question 3

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,
A) the supply curve shifted to the right resulting in an increase in the equilibrium price.
B) the supply curve shifted to the left resulting in an increase in the equilibrium price.
C) the demand curve shifted to the right resulting in an increase in the equilibrium price.
D) the demand curve shifted to the left resulting in a decrease in the equilibrium price.

Accepted Answer

Hurricanes destroying a large portion of Florida's orange and grapefruit crops represent a negative supply shock because the quantity supplied of citrus fruit decreased. As a result, the supply curve shifts to the left, which leads to a higher equilibrium price for citrus fruit. Therefore, choice B is the best answer.

Question 4

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?
A) an increase in the price of olive oil presses
B) a decrease in the cost of transporting olive oil to markets
C) an increase in the price of land used to plant olives
D) Research finds that consumption of olive oil reduces the risk of heart disease.

Accepted Answer

The research findings that consumption of olive oil reduces the risk of heart disease would increase demand for olive oil, which would result in producers being able to sell more olive oil at a higher price. The other options either increase production costs (option A and C) or decrease transportation costs (option B), which would not necessarily lead to an increase in price.

Question 5

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?
A) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
C) Both the supply and demand curves have shifted to the left. As a result, there has been a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.
D) The supply curve has shifted to the right and the demand curve has shifted to the left. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

Accepted Answer

The increased cost of production indicates a shift in the supply curve to the left, while the decreasing demand is a shift in the demand curve to the left. Therefore, both curves have shifted to the left. This would result in a decrease in the equilibrium quantity and an uncertain effect on the equilibrium price.

Question 6

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that
A) the law of demand has been violated.
B) the number of tarot card readers has increased.
C) the demand for tarot card readers has increased.
D) tarot card readers are deliberately charging high prices because they provide services for superstitious clients.

Accepted Answer

According to the law of demand, as the price of a good or service increases, the quantity demanded decreases. However, in this scenario, both the price and sales of tarot card readings have increased, indicating that there is an increase in demand for the services of tarot card readers despite the higher price.

Question 7

Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots?
A) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left.
B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right.
C) The demand curve and the supply curve for Merlot have both shifted to the left.
D) The supply curve for Merlot has shifted to the right more than the demand curve has shifted to the right.

Accepted Answer

The drop in French oak barrel prices and rise in consumer incomes suggest an increase in the production efficiency of California Merlot and a decrease in the cost of production, respectively. This would cause the supply curve for Merlot to shift to the right. Meanwhile, the rising prices suggest an increase in demand for California Merlot, causing the demand curve to shift to the right as well. Since the demand curve has shifted more to the right than the supply curve, this increase in demand relative to supply leads to rising prices.

Question 8

Prices of microbrewery beer (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for fermenting vats used in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery beer?
A) The supply curve for microbrewery beer has shifted to the left while the demand curve for microbrewery beer has shifted to the right.
B) The demand curve for microbrewery beer has shifted to the left more than the supply curve has shifted to the left.
C) The demand curve and the supply curve for microbrewery beer have both shifted to the right.
D) The supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left.

Accepted Answer

The rising prices of fermenting vats used in beer making suggest that the cost of production for microbreweries is increasing, causing the supply curve for microbrewery beer to shift to the left. Consumer incomes falling suggest a decrease in demand, causing the demand curve for microbrewery beer to shift to the left. The fact that microbrewery beer is a normal good confirms that a fall in income will lead to a decrease in demand. Therefore, the supply curve for microbrewery beer has shifted to the left more than the demand curve has shifted to the left, resulting in rising prices for microbrewery beer.

Question 9

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?
A) a decrease in the price of orange juice processing
B) an increase in the cost of fertilizer used for orange groves
C) a decrease in income, assuming orange juice is a normal good
D) a decrease in the population

Accepted Answer

A decrease in the price of orange juice processing would lead to a lower cost of production, which could lead to lower prices for consumers. This would incentivize orange juice drinkers to consume more orange juice at a lower price. The other choices would have the opposite effect or no effect at all (an increase in the cost of fertilizer would increase production costs and potentially lead to higher prices; a decrease in income would likely decrease demand for normal goods like orange juice; and a decrease in population would decrease demand for orange juice).

Question 10

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?
A) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
C) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in both the equilibrium price and the equilibrium quantity.
D) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.

Accepted Answer

The decrease in the cost of producing organic produce has shifted the supply curve to the right. As a result, there is an increase in the equilibrium quantity. The preference for organic produce has led to an increase in demand, shifting the demand curve to the right. This also leads to an increase in the equilibrium quantity. However, the effect on equilibrium price is uncertain as it will depend on the extent to which the increase in supply can match the increase in demand. So, both the supply and demand curves have shifted to the right, resulting in an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

Question 11

Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease?
A) an increase in consumer income
B) a freeze that sharply reduces potato output
C) a decrease in consumer income
D) a technological advancement that results in a bumper crop of potatoes

Accepted Answer

The answer of Which of the following would cause both...

Question 12

Let D = demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?
A) D decreases, S no change, P and Q decrease
B) S decreases, D no change, P increases, Q decreases
C) D and S decrease, P and Q increase
D) D no change, S decreases, P increases, Q increases

Accepted Answer

If the governments restrict the amount of forest lands that can be logged, the supply of tropical hardwood trees decreases, causing the supply curve to shift to the left. This leads to an increase in equilibrium price (P) and a decrease in equilibrium quantity (Q) of tropical hardwood trees. The demand (D) for tropical hardwood trees remains unchanged in this scenario. Therefore, option B is the best choice.

Question 13

Table 3-5
 
-Refer to Table 3-5. The table contains information about the corn market. Use the table to answer the following questions.
a. What are the equilibrium price and quantity of corn?
b. Suppose the prevailing price is $9 per bushel. Is there a shortage or a surplus in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $9 per bushel?
e. If the market price is $9 per bushel, what must happen to restore equilibrium in the market?
f. At what price will suppliers be able to sell 22,000 bushels of corn?
g. Suppose the market price is $21 per bushel. Is there a shortage or a surplus in the market?
h. What is the quantity of the shortage or surplus?
i. How many bushels will be sold if the market price is $21 per bushel?
j. If the market price is $21 per bushel, what must happen to restore equilibrium in the market?

Accepted Answer

The answer of Table 3-5
 
-Refer to Table 3-5. The...

Question 14

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments
A) decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries.
B) decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries.
C) decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.
D) decreased demand and increased supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries.

Accepted Answer

The development of side effects from laser eye surgery, including blurred vision, decreased demand for the surgery. This would shift the demand curve to the left, decreasing the equilibrium quantity. The second development of reduced charges from companies renting eye-surgery machinery to doctors would increase the supply of laser eye surgeries, shifting the supply curve to the right. The effect on equilibrium price is uncertain because it depends on the relative magnitude of the shifts in demand and supply. However, we can conclude that there would be a decrease in the equilibrium quantity of laser eye surgeries.

Question 15

Let D = demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?
A) D increases, S no change, P and Q increase
B) S increases, D no change, P decreases, Q increases
C) D and S increase, P and Q decrease
D) D no change, S increases, P decreases, Q decreases

Accepted Answer

The announcement by the Centers for Disease Control and Prevention will likely increase the demand for walnuts as consumers become more aware of their health benefits. This will shift the demand curve to the right, leading to an increase in both the equilibrium price and quantity. The announcement will not affect the supply of walnuts, hence the supply curve will remain unchanged.

Question 16

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that
A) the law of supply has been violated.
B) the demand for swimming pool maintenance services has increased.
C) the supply of swimming pool maintenance services has decreased.
D) swimming pool maintenance services are becoming more technologically advanced.

Accepted Answer

The rise in price has led to a decrease in demand, indicating a decrease in the supply of swimming pool maintenance services. This is consistent with the law of supply, which states that as the price of a good or service increases, the quantity supplied will increase as well. Therefore, A and B are incorrect. There is no information in the scenario to support D.

Question 17

In much of Europe, the legal age to obtain a driver's license is 18. If the legal driving age in the United States was changed to 18, how would this affect the market for new automobiles? The market for automobile insurance?

Accepted Answer

The answer of In much of Europe, the legal age...

Question 18

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?
A) an increase in consumer income
B) a drought that sharply reduces cotton output
C) a decrease in consumer income
D) unusually good weather that results in a bumper crop of cotton

Accepted Answer

The answer of Which of the following would cause both...

Question 19

Table 3-6
 
-Refer to Table 3-6. The table contains information about the sorghum market. Use the table to answer the following questions.
a. What are the equilibrium price and quantity of sorghum?
b. Suppose the prevailing price is $6 per bushel. Is there a shortage or a surplus in the market?
c. What is the quantity of the shortage or surplus?
d. How many bushels will be sold if the market price is $6 per bushel?
e. If the market price is $6 per bushel, what must happen to restore equilibrium in the market?
f. At what price will suppliers be able to sell 36,000 bushels of sorghum?
g. Suppose the market price is $14 per bushel. Is there a shortage or a surplus in the market?
h. What is the quantity of the shortage or surplus?
i. How many bushels will be sold if the market price is $14 per bushel?
j. If the market price is $14 per bushel, what must happen to restore equilibrium in the market?

Accepted Answer

The answer of Table 3-6
 
-Refer to Table 3-6. The...

Question 20

Draw a supply and demand graph showing an equilibrium price of $50 and an equilibrium quantity of 200 units. Explain what would happen if the selling price was $75, and illustrate this on the graph. Explain what would happen if the selling price was $25, and illustrate this on the graph. Be sure to label each axis and curve on the graph.

Accepted Answer

The answer of Draw a supply and demand graph showing...

Quiz 3: Where Prices Come From: the Interaction of Demand and Supply

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?

The cost of producing cigarettes in the U.S. has increased and at the same time, more and more Americans are choosing to not smoke cigarettes. Which of the following best explains the effect of these events in the cigarette market?

Assume that the hourly price for the services of tarot card readers has risen and sales of these services have also risen. One can conclude that

Prices of microbrewery beer (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for fermenting vats used in beer making have also risen and consumer incomes have fallen. Which of the following best explains the rising prices of microbrewery beer?

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease?

Let D = demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for tropical hardwood trees if the governments restrict the amount of forest lands that can be logged?

Let D = demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

Assume that the price for swimming pool maintenance services has risen and sales of these services have fallen. One can conclude that

In much of Europe, the legal age to obtain a driver's license is 18. If the legal driving age in the United States was changed to 18, how would this affect the market for new automobiles? The market for automobile insurance?

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?