Question 1

What will happen when there is a rightward shift in the demand curve?
A) The product price will instantaneously adjust downward.
B) Product prices do not change in this situation.
C) Producers will decrease the product price.
D) A new, higher price is not instantaneously achieved, but the price will rise over time.

Accepted Answer

A rightward shift in the demand curve indicates an increase in demand for the product. In the short run, the product price may not adjust upward immediately due to existing inventory and production constraints. However, over time, producers will see the increased demand and adjust the price upward to captures the benefits of the increased demand.

Question 2

People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this?
A) Fresh fruit is not subject to the law of supply.
B) The supply of fresh fruit increases in the summer.
C) Fresh fruit is an inferior good.
D) Fresh fruit is not subject to the law of demand.

Accepted Answer

The supply of fresh fruit increases in the summer due to the fact that it is the peak season for fruit production in many regions. With more supply, the prices of fresh fruit usually decrease. This is an example of how the law of supply and demand works in the market.

Question 3

The supply of eggs comes from chickens. The price of eggs will decrease if
A) the supply of chickens decreases.
B) the supply of eggs decreases.
C) the price of chickens increases.
D) the demand for eggs decreases.

Accepted Answer

When the demand for eggs decreases, it means fewer people want to buy eggs, which can lead to a surplus of eggs on the market. To sell this surplus, sellers might lower the price of eggs, leading to a decrease in the price of eggs.

Question 4

A newspaper headline asserts: "Falling Demand Pushes Down Housing Prices." This headline
A) incorrectly implies that the demand for housing can change, whereas in fact only the quantity of housing demanded can change.
B) incorrectly implies that the price of housing will rise when demand increases.
C) incorrectly implies that more housing will be demanded at higher prices.
D) correctly implies that a decrease in demand will decrease the market clearing price.

Accepted Answer

The headline correctly implies that a decrease in demand will decrease the market clearing price. When the demand for housing falls, there will be less competition among buyers, leading to a lower price to clear the market. Option A is incorrect because although the demand for housing cannot change, the quantity of housing demanded can change due to factors such as changes in income or population. Option B is incorrect because an increase in demand will cause the price of housing to rise, not the other way around. Option C is incorrect because there is no guarantee that more housing will be demanded at higher prices as demand and price are inversely related.

Question 5

Suppose that an early frost damages the Florida orange crop. As a result, the price of California oranges increases. Ceteris paribus, which one of the following statements best explains this situation?
A) The supply of Florida oranges decreased, causing the supply of California oranges to increase, which resulted in a higher price.
B) The supply of Florida oranges decreased, causing the supply of California oranges to decrease, which resulted in a higher price.
C) The supply of Florida oranges decreased, causing their price to increase, and thus causing the demand for California oranges to increase.
D) The demand for Florida oranges fell because of the freeze, and this led to a higher demand for California oranges.

Accepted Answer

The decrease in the supply of Florida oranges due to the frost would increase their price, making California oranges a more attractive option for consumers. This increased demand for California oranges, with supply remaining constant, would lead to a higher price for California oranges.

Question 6

Suppose you observe that the price of a good increases and that the quantity of this good sold also increases. If only the demand curve or the supply curve shifts this suggests that
A) supply increased over time while demand remained the same.
B) supply decreased over time while demand remained the same.
C) demand increased over time while supply remained the same.
D) demand decreased over time while supply remained the same.

Accepted Answer

An increase in both price and quantity can only occur when there is an increase in demand and no decrease in supply. Therefore, if only one curve shifts, it must be the demand curve that shifts to the right (i.e. an increase in demand), while supply remains the same.

Question 7

A decrease in demand and a decrease in supply will lead to
A) unambiguous increases in both price and quantity.
B) unambiguous decreases in both price quantity.
C) an unambiguous decrease in price, but the effect on quantity is indeterminate.
D) an unambiguous decrease in quantity, but the effect on price is indeterminate.

Accepted Answer

A decrease in demand leads to a lower equilibrium price and quantity. A decrease in supply leads to a higher price but a lower quantity. The combined effect is unambiguously a decrease in quantity, but the effect on price is indeterminate because the demand and supply shifts work in opposite directions on price.

Question 8

A decrease 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 decrease in price, but the effect on quantity is indeterminate.
D) an unambiguous decrease in quantity, but the effect on price is indeterminate.

Accepted Answer

A decrease in demand and an increase in supply will lead to a surplus in the market, which will put downward pressure on price. However, the effect on quantity is indeterminate as it depends on the extent of the decrease in demand and the increase in supply.

Question 9

List prices on new cars do NOT change very often, so
A) the real price of cars is very inflexible.
B) the prices of new cars can only be flexible if there are changes in the cost of materials.
C) price flexibility is not an important feature in the auto market.
D) price flexibility shows up primarily through the negotiations between buyers and sellers.

Accepted Answer

List prices may not change very often, but price flexibility can still exist in the form of negotiations between buyers and sellers. The final price that a buyer pays for a new car can often be negotiated based on factors such as demand, competition, and available incentives. Therefore, the best choice is D as it correctly identifies negotiation as a key factor in price flexibility.

Question 10

The more flexible prices are, the
A) greater demand shifts have to be to bring about a new equilibrium.
B) larger the shifts in supply will be after a change in demand.
C) greater the reliance by sellers to change the nominal price.
D) more quickly a shock to the economy can be absorbed.

Accepted Answer

When prices are flexible, they can adjust quickly to changes in demand or supply shocks, helping to restore equilibrium in the market. This means that any shock to the economy can be absorbed more quickly, making D the correct answer.

Question 11

During the 2016 Summer Olympics in the city of Rio, some Rio residents rented rooms to visitors. This behavior
A) helped reduce the shortage of hotel rooms caused by the high demand during the Olympics.
B) reduced the demand for tickets to the Olympics since many local residents left town while they rented out space in their homes.
C) helped raise the prices that visitors paid for hotel rooms in Rio.
D) raised the demand for hotel rooms in Rio and should have been prevented by the city of Rio.

Accepted Answer

Renting rooms to visitors helped reduce the shortage of hotel rooms caused by the high demand during the Olympics.

Question 12

Suppose a hurricane causes a great deal of destruction in Texas. After the hurricane, it takes much longer than usual for the reconstruction of homes to take place. A possible explanation for this is
A) greed by suppliers of construction materials increased.
B) government prevented price gouging during the reconstruction period.
C) prices of construction materials fell in the rest of the nation
D) environmental restrictions on lumbering in the Pacific Northwest were relaxed.

Accepted Answer

The delay in reconstruction could be due to government intervention to prevent price gouging. By capping prices on construction materials and services to avoid exploitation of the situation, the government might inadvertently reduce the incentive for suppliers to increase supply quickly, leading to shortages and delays in reconstruction efforts.

Question 13

Following adjustments to a new equilibrium in a market, the market clearing price remains unchanged, but the equilibrium quantity 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 both demand and supply decrease, the equilibrium quantity will decrease. The market clearing price can remain unchanged if the decreases in demand and supply are proportionate, leading to a new equilibrium point at a lower quantity but the same price.

Question 14

Suppose new research shows that soy milk and other products derived from soybeans provide more health benefits than previously thought. At the same time, drought conditions result in extensive damage to the soybean crop. What will be the combined impact of these two factors on the equilibrium price and quantity of soybeans?
A) Price will decrease, but the effect on quantity is indeterminate.
B) Price will increase, but the effect on quantity is indeterminate.
C) Quantity will decrease, but the effect on price is indeterminate.
D) Quantity will increase, but the effect on price is indeterminate.

Accepted Answer

The new research showing increased health benefits will lead to an increase in demand for soy products, including soybeans. However, the drought conditions result in a decrease in the supply of soybeans. The combined effect of these two factors is that the price of soybeans will increase, but the effect on quantity is indeterminate as it depends on the extent of the decrease in supply caused by the drought conditions.

Question 15

For which situation would we expect the adjustment speed to be the fastest?
A) The demand for surgeons increases.
B) A large increase in birth rates leads to an increase in elementary school teachers.
C) The demand for movie videos increases.
D) The demand for office space in downtown Chicago increases.

Accepted Answer

The demand for movie videos is a relatively fast-moving industry, and adjustments to changes in demand can be made quickly through online streaming services and video-on-demand platforms. In contrast, professions such as surgeons and elementary school teachers may take several years for new individuals to complete the necessary education and training to enter the market. Similarly, the construction of office space in downtown Chicago may take significant time and resources, leading to slower adjustment speeds.

Question 16

To enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. Even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. How do these country clubs set the price of membership to ensure that they have a waiting list?
A) Set the membership price above the market clearing price.
B) Set the membership price below the market clearing price.
C) Set the price so that the quantity supplied of memberships exceeds the quantity demanded.
D) Set the price at a level that will generate a surplus of memberships.

Accepted Answer

Setting the membership price below the market clearing price creates excess demand, resulting in a waiting list.

Question 17

Roses are more expensive on Valentine's Day than at other times of the year, yet sales of roses are highest on that day. How does economic theory account for this?
A) An increase in demand pushes up the market clearing price of roses.
B) People buying the roses are irrational.
C) Roses are not subject to the law of demand.
D) Florists know that there are no substitutes for roses, so they take advantage of consumers on Valentine's Day.

Accepted Answer

According to the law of demand, an increase in demand leads to an increase in price. As people want to buy more roses on Valentine's Day, there is an increase in demand. This increase in demand pushes up the market clearing price of roses, making them more expensive than at other times of the year. Despite the higher price, people are still willing to buy roses on Valentine's Day, as they want to show their love and affection.

Question 18

The income of consumers increases. and the wage rate in the seafood industry increases. As a result
A) the price of seafood stays the same and the quantity sold can either increase or decrease, depending on whether the change in demand is greater than the change in supply.
B) the price of seafood increases and the quantity sold can either increase, decrease or stay the same depending on whether the change in demand was greater than the change in supply.
C) the equilibrium quantity sold increases and price can either increase or decrease, depending on whether the change in demand is greater than the change in supply.
D) the equilibrium quantity sold can either increase or decrease and the price can either increase or decrease, depending on whether the change in demand was greater than the change in supply.

Accepted Answer

When consumers' income increases, their demand for goods, including seafood, typically increases, leading to a potential increase in the price of seafood if supply remains constant. On the other hand, an increase in the wage rate in the seafood industry can lead to an increase in production costs, potentially decreasing supply or increasing the price of seafood to maintain profitability. The overall effect on the quantity sold depends on the relative magnitudes of the demand and supply shifts. If the demand increase is greater than the supply decrease, the quantity sold could increase, and vice versa. Therefore, the price of seafood is likely to increase, but the quantity sold can either increase, decrease, or stay the same, depending on the relative changes in demand and supply.

Question 19

Suppose you observe that the price of movie admissions decline and that the number of people attending movies declines as well. If only the demand curve or the supply curve shifts, this suggests that
A) movies are a normal good and incomes have increased.
B) high salaries for Hollywood actors have increased the cost of movie making.
C) movie theaters have experienced an increase in their operating costs due to increases in the minimum wage.
D) admission prices for other types of entertainment, such as live shows and sporting events, have also declined.

Accepted Answer

If admission prices for other types of entertainment have declined, it could lead to a decrease in demand for movie admissions, causing both the price and quantity of movie admissions to fall.

Question 20

After an increase in the demand for construction workers, the market will attain its new long-run equilibrium faster if
A) wages are flexible.
B) wages are inflexible, forcing new people to enter the market.
C) unions restrict the number of new construction workers.
D) people ignore the shortage in the short run.

Accepted Answer

Flexible wages allow the labor market to adjust quickly to changes in demand, ultimately reaching a new long-run equilibrium faster. This is because higher wages will attract more workers to enter the market, while lower wages will incentivize some workers to leave. In contrast, if wages are inflexible or restricted by unions, it may take longer for the market to adjust and reach a new equilibrium, potentially leading to shortages or surpluses of labor in the short run. Ignoring the shortage in the short run (choice D) is not a viable solution as it could lead to projects being delayed or canceled, ultimately hurting the construction industry and the broader economy.

Quiz 4: Extensions of Demand and Supply Analysis

What will happen when there is a rightward shift in the demand curve?

People consume more fresh fruit in the summer than during the rest of the year, yet the prices of fresh fruit are lower in the summer than in other seasons. What accounts for this?

The supply of eggs comes from chickens. The price of eggs will decrease if

A newspaper headline asserts: "Falling Demand Pushes Down Housing Prices." This headline

Suppose that an early frost damages the Florida orange crop. As a result, the price of California oranges increases. Ceteris paribus, which one of the following statements best explains this situation?

Suppose you observe that the price of a good increases and that the quantity of this good sold also increases. If only the demand curve or the supply curve shifts this suggests that

A decrease in demand and a decrease in supply will lead to

A decrease in demand and an increase in supply will lead to

List prices on new cars do NOT change very often, so

The more flexible prices are, the

During the 2016 Summer Olympics in the city of Rio, some Rio residents rented rooms to visitors. This behavior

Suppose a hurricane causes a great deal of destruction in Texas. After the hurricane, it takes much longer than usual for the reconstruction of homes to take place. A possible explanation for this is

Following adjustments to a new equilibrium in a market, the market clearing price remains unchanged, but the equilibrium quantity is now lower. Which of the following could definitely have caused this outcome?

For which situation would we expect the adjustment speed to be the fastest?

Roses are more expensive on Valentine's Day than at other times of the year, yet sales of roses are highest on that day. How does economic theory account for this?

The income of consumers increases. and the wage rate in the seafood industry increases. As a result

Suppose you observe that the price of movie admissions decline and that the number of people attending movies declines as well. If only the demand curve or the supply curve shifts, this suggests that

After an increase in the demand for construction workers, the market will attain its new long-run equilibrium faster if