Question 1

A shortage occurs whenever:

Accepted Answer

A shortage occurs when there is excess demand for a good or service, which means the quantity demanded exceeds the quantity supplied. Option A is incorrect as it describes a situation where there is excess supply. Option B is incorrect as it describes a situation where the price is above the equilibrium price, which could lead to a surplus but not a shortage. Option D is incorrect as it describes a situation where the government intervention creates a minimum price higher than the equilibrium price, leading to a surplus but not a shortage. Option E is incorrect as it describes a situation where the government sets a maximum price below the equilibrium price, leading to an excess demand or a shortage.

Question 2

When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.

Accepted Answer

When the price is above the equilibrium price, there is more supply than demand, leading to a surplus. This surplus puts downward pressure on the price as sellers lower prices to clear their excess inventory, moving the price back towards equilibrium.

Question 3

If the number of buyers in a market increases from 50 to 100, you would expect the equilibrium price to _________ and the equilibrium quantity to _________, holding all else constant.

Accepted Answer

When the number of buyers in a market increases, demand for the product typically increases, leading to a higher equilibrium price and a higher equilibrium quantity, assuming all other factors remain constant.

Question 4

The equilibrium price of peanut butter is $5. A study comes out that says the fat in peanut butter is good for your heart. Holding all other factors constant, which of the following scenarios could happen?

Accepted Answer

The study stating that peanut butter is good for your heart will increase the demand for peanut butter, causing the equilibrium price to increase. Therefore, the price of peanut butter will increase to $7 because of a demand shift.

Question 5

A technological advancement for Good A will shift the _________ curve of Good A to the _________, making the equilibrium price _________.

Accepted Answer

A technological advancement in the production of Good A would make its production more efficient, leading to an increase in supply. This shift in the supply curve to the right typically results in a lower equilibrium price, as more of the good can be produced at each price level.

Question 6

The equilibrium price of teddy bears is $5. A study comes out that says owning a teddy bear causes you to earn a lower salary. If all other factors are held constant, which of the following scenarios could happen?

Accepted Answer

The study suggesting a negative outcome from owning teddy bears would likely decrease consumer demand, leading to a decrease in price due to a shift in the demand curve, not the supply curve.

Question 7

According to the accompanying figure, if the price is $10, there is a:

Accepted Answer

The answer of According to the accompanying figure, if the...

Question 8

Wine and cheese are complement goods because they are consumed together. What would you expect to happen to the equilibrium quantity of cheese if the price of wine increased and all else is held constant?

Accepted Answer

Wine and cheese are complement goods, meaning that they are consumed together. If the price of wine increases, the demand for wine will decrease, leading to a decrease in the demand for cheese as well. As a result, the equilibrium quantity of cheese will decrease as consumers will be less likely to purchase it at the same price.

Question 9

When the demand curve shifts to the left and all else is held constant, the

Accepted Answer

When the demand curve shifts to the left, it means that buyers are willing to purchase less at every price level. This results in a decrease in equilibrium quantity. As the demand curve shifts left, the demand for the product decreases, and firms are left with a supply surplus. To eliminate this surplus, firms are forced to lower the price of goods, resulting in a drop in equilibrium price. Therefore, when the demand curve shifts to the left and all else is held constant, the equilibrium price falls and the equilibrium quantity falls.

Question 10

In the first few months of 2012, the price of gasoline increased by approximately 15%. Because of this increase, we would expect the _________ curve in the market for hybrid cars to _________.

Accepted Answer

The answer of In the first few months of 2012,...

Question 11

A decrease in demand is represented by a:

Accepted Answer

A decrease in demand means that consumers desire less of the product at every price level. This is represented by a shift of the entire demand curve to the left, as the quantity demanded decreases at each price point.

Question 12

Assume that the market for baseballs is in equilibrium. There is a sudden decrease in income throughout the economy. If all else is held constant, we would expect that:

Accepted Answer

The answer of Assume that the market for baseballs is...

Question 13

Which of the following scenarios would explain the change in equilibrium shown in the accompanying figure?

Accepted Answer

The answer of Which of the following scenarios would explain...

Question 14

If all else is held constant, what would happen to the equilibrium price and quantity of iPhones if the price of an Android phone decreased?

Accepted Answer

A decrease in the price of Android phones, which are substitutes for iPhones, would lead to a decrease in the demand for iPhones. This would result in a lower equilibrium price and quantity for iPhones as consumers switch to the more affordable Android options.

Question 15

The difference between a tax and a subsidy is that when the government places a tax on a good, it _________ the equilibrium price and _________ the equilibrium quantity, whereas when the government places a subsidy on a good, it _________ the equilibrium price and _________ the equilibrium quantity.

Accepted Answer

A tax on a good typically increases the equilibrium price (as the cost of production or selling price for consumers increases) and decreases the equilibrium quantity (as higher prices lead to lower demand). Conversely, a subsidy decreases the equilibrium price (by making it cheaper to produce or buy) and increases the equilibrium quantity (as lower prices boost demand).

Question 16

Refer to the accompanying diagram. Which of the following scenarios would explain this change in equilibrium?

Accepted Answer

If the price of a substitute good for this good (i.e. a good that can be used in place of this good) increases, consumers are more likely to switch to buying this good instead. This increases the demand for this good and shifts the equilibrium to a higher price and quantity.

Question 17

When the demand curve shifts to the right and the supply curve is held constant,

Accepted Answer

When the demand curve shifts to the right and the supply curve is held constant, there is an increase in both equilibrium price and quantity. This is because the increase in demand leads to a higher price at the same quantity, and the higher price then encourages suppliers to produce and sell more, leading to an increase in quantity as well. Therefore, the correct answer is D.

Question 18

When supply shifts to the right and demand stays constant, the equilibrium price:

Accepted Answer

The answer of When supply shifts to the right and...

Question 19

The economists at JET Consulting consider Campbell's Soup to be an inferior good. During a recession, when the income in the economy is decreasing, economists at JET Consulting would expect the demand curve for Campbell's Soup to _________, causing the equilibrium price to _________ and the equilibrium quantity to _________.

Accepted Answer

Inferior goods are those for which demand increases when consumer income decreases. During a recession, as incomes fall, consumers tend to buy more of these goods because they are cheaper alternatives to more expensive options. Therefore, the demand curve for Campbell's Soup would shift to the right, causing both the equilibrium price and quantity to increase.

Question 20

Some studies have shown that eating chocolate before a test can increase brain activity, thereby causing students to score higher on exams. When these findings were announced, the price and quantity sold of chocolate increased in college towns. One reason for this could have been that the:

Accepted Answer

The study showed that eating chocolate before a test can increase brain activity, leading to higher exam scores. This information caused consumers to increase their demand for chocolate, resulting in an increase in price and quantity sold in college towns. Therefore, the correct answer is B) consumers increased their demand for chocolate.

Quiz 3: The Market at Work: Supply and Demand