Question 1

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

An increase in consumer income, assuming cotton is a normal good, would lead to an increase in demand. This increased demand shifts the demand curve to the right, resulting in a higher equilibrium price and quantity.

Question 2

A decrease in the demand for soft drinks due to changes in consumer tastes,accompanied by an increase in the supply of soft drinks as a result of reductions in input prices,will result in
A) a decrease in the equilibrium quantity of soft drinks and no change in the equilibrium price.
B) a decrease in the equilibrium price of soft drinks and no change in the equilibrium quantity.
C) a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease.
D) an increase in the equilibrium quantity of soft drinks; the equilibrium price may increase or decrease.

Accepted Answer

A decrease in demand typically results in a decrease in the equilibrium quantity and price. However, an increase in supply can offset this effect and lead to a decrease in the equilibrium price but the change in equilibrium quantity is uncertain and may depend on the magnitude of the two effects. In this case, the decrease in demand is accompanied by an increase in supply, so the equilibrium price of soft drinks will decrease. However, the change in equilibrium quantity may decrease or increase depending on the relative magnitudes of the decrease in demand and increase in supply.

Question 3

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for rice.What happens in this market if buyers expect the price of rice to fall?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

The answer of Figure 3-7 
-Refer to Figure 3-7.Assume that...

Question 4

Let D = demand,S = supply,P = equilibrium price,Q = equilibrium quantity.What happens in the market for walnuts if the Centre for Disease Control and Prevention announces that consuming half a 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 Centre for Disease Control and Prevention will create a positive externality as it highlights the health benefits of consuming walnuts, leading to an increase in demand for walnuts. As a result, the demand increases (D increases) which causes an increase in the equilibrium price (P increases) and quantity demanded (Q increases). The supply of walnuts does not change, so there is no change in supply (S no change). Hence, option A is the correct answer.

Question 5

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 fertiliser used for orange groves.
C) A decrease in income, assuming orange juice is a normal good.
D) A decrease in the population.

Accepted Answer

If the processing cost for orange juice decreases, the overall cost of producing orange juice decreases, and manufacturers are more likely to reduce the price of the product. This would encourage consumers to buy more orange juice.

Question 6

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

When the price of a service increases and sales fall, it typically implies that there has been a decrease in supply of that service. The law of supply states that as price increases, suppliers would be willing to supply more of the good, but in this case, the opposite is happening, indicating a decrease in supply. Option B - an increase in demand for the service - is not supported by the information given. Option D - technological advancement - is not related to the cause of a price increase in swimming pool maintenance services.

Question 7

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, one of the main ingredients in white bread, will decrease the cost of producing white bread, leading to a decrease in its equilibrium price. At the same time, the decrease in production costs will encourage more white bread to be produced and supplied to the market, increasing the equilibrium quantity of white bread. An increase in the price of flour (B) would have the opposite effect, increasing the equilibrium price and decreasing the equilibrium quantity of white bread. An increase in the price of rye bread, a substitute for white bread (C), would lead consumers to switch to rye bread and diminish demand for white bread, leading to a decrease in both equilibrium price and quantity of white bread. An increase in the price of butter, a complement to white bread (D), would increase the cost of consuming both goods together and reduce demand for both, leading to a decrease in both equilibrium price and quantity of white bread.

Question 8

Table 3-1
 
-Refer to Table 3-1.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 3-1
 
-Refer to Table 3-1.The table...

Question 9

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for almonds.Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

The answer of Figure 3-7 
-Refer to Figure 3-7.Assume that...

Question 10

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets.Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

The answer of Figure 3-7 
-Refer to Figure 3-7.Assume that...

Question 11

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements.Which panel describes what happens in this market when the price of steak rises?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

The answer of Figure 3-7 
-Refer to Figure 3-7.Assume that...

Question 12

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for women's clothing.Which panel best describes what happens in this market when the wages of seamstresses rise?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

When the wages of seamstresses rise, the supply curve will shift to the left (decrease in supply) as it becomes more expensive to produce clothing. Panel (b) shows a leftward shift of the supply curve, resulting in a higher equilibrium price and a lower equilibrium quantity.

Question 13

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

When both the price and sales of a good or service rise, it usually indicates an increase in demand. This means that more people are willing to pay the higher price for the service of tarot card readers. Choice D is not a valid explanation as it assumes that tarot card readers are intentionally overcharging for their services, which may not necessarily be true.

Question 14

Figure 3-7 
-Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for used clothing,an inferior good.Which panel describes what happens in this market as a result of a decrease in income?
A) Panel (a)
B) Panel (b)
C) Panel (c)
D) Panel (d)

Accepted Answer

The answer of Figure 3-7 
-Refer to Figure 3-7.Assume that...

Question 15

If the price of a product is above equilibrium,what forces it down?

Accepted Answer

The answer of If the price of a product is...

Question 16

Let D = demand,S = supply,P = equilibrium price,Q = equilibrium quantity.What happens in the market for tropical hardwood trees if the government restricts 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

Restricting the amount of forest lands that can be logged would decrease the supply of tropical hardwood trees (S decreases). Demand would remain the same (D no change). This would result in a shortage of tropical hardwood trees, leading to an increase in price (P increases) and a decrease in quantity (Q decreases).

Question 17

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 finding that consumption of olive oil reduces the risk of heart disease would increase the demand for olive oil, leading to an increase in both the quantity sold and the price. The other options are not likely to have a direct impact on the demand for olive oil or the price at which it is sold.

Question 18

An increase in the demand for lobster due to changes in consumer tastes,accompanied by a decrease in the supply of lobster as a result of bad weather reducing the number of fishermen trapping lobster,will result in
A) a decrease in the equilibrium quantity of lobster and no change in the equilibrium price.
B) an increase in the equilibrium price of lobster and no change in the equilibrium quantity.
C) an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.
D) a decrease in the equilibrium quantity of lobster; the equilibrium price may increase or decrease.

Accepted Answer

The increase in demand for lobster will lead to an increase in the equilibrium price of lobster. The decrease in supply due to bad weather reducing the number of fishermen trapping lobster will lead to a decrease in the equilibrium quantity of lobster. Therefore, the equilibrium price will increase, and the equilibrium quantity may increase or decrease depending on the extent of the change in demand and supply.

Question 19

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

A decrease in the demand for soft drinks due to changes in consumer tastes,accompanied by an increase in the supply of soft drinks as a result of reductions in input prices,will result in

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for rice.What happens in this market if buyers expect the price of rice to fall?

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

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

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

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

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for almonds.Which panel best describes what happens in this market when there is an increase in the productivity of almond harvesters?

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets.Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles?

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for potatoes and that steak and potatoes are complements.Which panel describes what happens in this market when the price of steak rises?

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for women's clothing.Which panel best describes what happens in this market when the wages of seamstresses rise?

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

Figure 3-7 -Refer to Figure 3-7.Assume that the graphs in this figure represent the demand and supply curves for used clothing,an inferior good.Which panel describes what happens in this market as a result of a decrease in income?

If the price of a product is above equilibrium,what forces it down?

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

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

An increase in the demand for lobster due to changes in consumer tastes,accompanied by a decrease in the supply of lobster as a result of bad weather reducing the number of fishermen trapping lobster,will result in

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