BUSA 602 Chapter 4 Equilibrium

Suppose that when good X is free, buyers will demand 200 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the price is $30 and the quantity supplied is 125 units:

there is no pressure to change

When the free market maximizes the total gains from trade, there are no:

unexploited gains from trade or wasted resources

An early frost in the vineyards of Napa Valley would cause a(n):

decrease in the supply of wine, increasing price.

A decrease in demand _____ the equilibrium price and _____ the equilibrium quantity.

decreases, decreases

In a free market setting where quantity supplied is 50 units and quantity demanded is 40 units, price will:

fall

If demand increases, ceteris paribus, market price will be ______ at the new equilibrium point.

higher

Benny is a seller in Vernon Smith's classroom experiment of the market model. Which does he know?

his own willingness to sell

Economic growth in China has led to more Chinese people owning cars, which:

increased the demand for oil, causing prices to rise

An increase in the quantity demanded of a good would be graphically represented by a

movement along a fixed demand curve.

By the early 1970s, OPEC countries were able to act together to _____ supply and _____ prices.

reduce, raise

A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.

supply; fall; quantity demanded to increase

Imagine that a major car company is producing large, fuel-inefficient SUVs during a period of rising gas prices. As a result, dealerships are overstocked with inventory that is not selling. How can we BEST describe this phenomenon?

This is a surplus, because the quantity supplied is greater than the quantity demanded.

Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box, but only one box is available between these two buyers, then gains from trade will be maximized when:

Tim buys the treats

Holding demand constant, if the supply curve shifts to the left, there will be a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity.

increase, decrease

A nationwide strike by workers in the widget industry has decreased the supply of widgets. Because of the decrease in supply, the equilibrium price of widgets:

increased, and the quantity of widgets demanded decreased.

A free market _____ the gains from trade.

maximizes

An increase in demand causes a:

temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity.

What is the difference between a change in the demand and a change in quantity demanded?

A change in demand shifts the entire curve; a change in quantity demanded means price changed.

Equilibrium occurs when the quantity demanded is _____ the quantity supplied.

Equal to

Suppose there is an increase in demand in a market and no change in the supply. What will happen to the market equilibrium price and quantity?

Equilibrium price will rise; equilibrium quantity will rise.

When the free market maximizes the total gains from trade, the supply of goods is bought by:

The buyers with the highest willingness to pay

Which statement about a market at equilibrium price and quantity is false?

The market could not have achieved equilibrium without government interference.

Which statement about Vernon Smith's laboratory experiments is correct?

The participants were undergraduate students

Which choice explains how the OPEC crisis of 1973 affected oil prices?

The supply of oil was reduced, leading to a rise in oil prices.