Question 1

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

When there is an increase in supply at the same time that demand decreases, the market clearing price for computer modems will decrease. This is because at the new supply level, producers will be willing to sell the modems at a lower price to attract consumers who may be less willing to buy at the current demand level. This will lead to a decrease in the market clearing price.

Question 2

An increase in the price of labor used to produce good A will lead to
A) an increase in the market clearing price of good A.
B) an increase in the supply of good A.
C) a decrease in the demand for good A.
D) an increase in the demand for good A.

Accepted Answer

An increase in the price of labor, which is a cost of production, typically leads to a decrease in supply because it becomes more expensive to produce the good. This decrease in supply, with demand remaining constant, usually results in an increase in the market clearing price of the good. Choices B, C, and D do not directly result from an increase in the price of labor.

Question 3

A technological advancement has just occurred in the phone camera 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

A technological advancement in the phone camera industry would likely lead to an increase in demand for computer chips used in the cameras. However, advancements in technology often lead to cost savings and efficiency gains in the production process, which could lead to a decrease in price for computer chips. This decrease in production costs and potential increase in demand would likely result in an increase in quantity supplied, leading to a decrease in price and an increase in quantity.

Question 4

Goods A and B are complementary goods. An increase in the price of good A has occurred. In the market for good B 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 A and B are complementary, an increase in the price of good A will decrease the demand for both goods A and B, leading to a decrease in the price and quantity of good B.

Question 5

An increase in the equilibrium quantity of good B can be caused by
A) an increase the price of inputs utilized in producing good B.
B) an increase in the price of good B.
C) a technological improvement in the process of producing good B.
D) a reduction in the number of producers of good B.

Accepted Answer

A technological improvement in the process of producing good B would reduce the cost of production and increase the supply of good B, leading to a higher equilibrium quantity. Option A is incorrect since an increase in the price of inputs would increase the cost of production and reduce the supply of good B, leading to a lower equilibrium quantity. Option B is incorrect because an increase in the price of good B would reduce the quantity demanded, leading to a lower equilibrium quantity. Option D is incorrect since a reduction in the number of producers would decrease the supply of good B, leading to a lower equilibrium quantity.

Question 6

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 and a decrease in consumers' incomes typically leads to a decrease in demand for goods, including computer chips. As a result, producers will likely reduce the price of computer chips in order to encourage consumers to purchase them, but the decrease in demand will also result in a decrease in quantity produced.

Question 7

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

An increase in market clearing price and a reduction in supply go hand in hand. When supply decreases, the quantity of corn available in the market decreases. Since demand remains constant, the market price of corn increases to reach a new equilibrium where the quantity demanded equals the reduced quantity supplied. A reduction in demand (Option A) would lead to a decrease in price, while an increase in quantity demanded (Option C) and an increase in quantity supplied (Option D) would shift the supply and demand curves, with uncertain effects on price.

Question 8

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, it is very likely that the price will increase but the effect on quantity is uncertain. Therefore, option D is the best choice.

Question 9

Red wine has just been found to increase your expected life span by 5 years if you eat it every day. In the market for red wine, 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 for red wine due to the newfound health benefits will lead to an increase in both price and quantity as suppliers try to meet the higher demand.

Question 10

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

When demand decreases and supply increases, the equilibrium price falls, but the equilibrium quantity remains unchanged.

Question 11

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 lead to an increase in quantity, as both factors are pushing for more goods to be sold. However, the effect on price is indeterminate, as the increase in demand would push prices up, while the increase in supply would push prices down. The net effect on price will depend on the magnitude of the shift in demand and supply, and how they compare to each other.

Question 12

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 leads to a surplus of goods, which puts pressure on sellers to reduce prices in order to clear the excess inventory. Therefore, price will decrease.

Question 13

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

Since the drought has caused a decrease in the supply of cocoa, which is an ingredient in chocolate, the price of chocolate will increase. This increase in input costs will lead to an increase in the cost of producing chocolate chip cookies, causing a decrease in supply and an increase in price. Therefore, option B is correct. Option A is incorrect because a surplus will not arise as the decrease in supply will offset any possible excess demand. Option C is incorrect because the decrease in supply will cause a decrease in quantity and an increase in price, not a decrease in price. Option D is incorrect because nothing in the question indicates that there is an increase in demand for chocolate chip cookies.

Question 14

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 could only occur if there was a decrease in demand. An increase in supply, an increase in quantity demanded, or an increase in quantity supplied would cause an increase in equilibrium quantity.

Question 15

Goods A and B are complementary goods. A decrease in price of good A has occurred. In the market for good B, 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 goods that are used together, such as coffee and coffee filters or bread and butter. If the price of good A, which is complementary to good B, decreases, it will increase the demand for good A, thus increasing the demand for good B. As a result, the price of good B will increase and the quantity of good B will increase, leading to an increase in both price and quantity. Therefore, option B is the correct answer.

Question 16

-Refer to the above table for tablets. Suppose the demand for smartphones rises because more people use the Internet with a tablet. The new equilibrium price will be
A) $200.
B) $275.
C) more than $275.
D) impossible to be determined given the information.

Accepted Answer

When the demand for smartphones increases due to more people using the Internet with a tablet, it implies that tablets and smartphones are complementary goods. An increase in demand for smartphones would likely increase the demand for tablets as well, pushing the equilibrium price of tablets above its current level. Since $275 is the highest price option given, the new equilibrium price must be more than $275.

Question 17

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 18

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 the price of dairy products will cause a decrease in supply which will shift the supply curve to the left, leading to an increase in equilibrium price. However, the increase in temperature and people consuming more ice cream will increase demand, causing the demand curve to shift to the right. The effect on quantity, therefore, is indeterminate, as it depends on the extent of the shifts in the supply and demand curves.

Question 19

Firms that produce 90 percent of all phone cameras have shut down their facilities for maintenance. In the phone camera 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 90% of the firms shut down their facilities for maintenance, the supply of phone cameras will decrease, leading to a decrease in quantity. However, since the demand for phone cameras remains the same, the decrease in supply will lead to an increase in price. Therefore, there will be an increase in price and a decrease in quantity. Choice A is the only option that reflects this scenario.

Question 20

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 newly negotiated large raise for workers will increase their purchasing power and, thus, increase the demand for new automobiles. Additionally, the increase in licensed drivers in the market for a new car will also increase demand. This increase in demand would lead to an increase in both price and quantity, but we cannot determine the exact effect on quantity without more information about the supply side of the market. Therefore, the effect on quantity is indeterminate, and the answer is B.

Quiz 4: Extensions of Demand and Supply Analysis

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

An increase in the price of labor used to produce good A will lead to

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

Goods A and B are complementary goods. An increase in the price of good A has occurred. In the market for good B this will lead to

An increase in the equilibrium quantity of good B can be caused by

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 corn has just increased. Which of the following could have caused this change?

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

Red wine has just been found to increase your expected life span by 5 years if you eat it every day. In the market for red wine, 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?

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

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

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

Goods A and B are complementary goods. A decrease in price of good A has occurred. In the market for good B, this will lead to

-Refer to the above table for tablets. Suppose the demand for smartphones rises because more people use the Internet with a tablet. The new equilibrium price will be

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

Firms that produce 90 percent of all phone cameras have shut down their facilities for maintenance. In the phone camera market this will lead to