Chapter 3 Equilibrium Practice Quiz

If a product becomes more popular, Which curve will shift?

Demand (When a product becomes more popular, consumers' tastes change and they become more interested in purchasing this new product. This change in tastes will cause demand to increase. In other words, demand will shift to the right.)

Which curve shifts, and in what direction, when the following events occur in the tax accounting market? A new software is developed that helps individuals file their taxes on their own.

Demand decreases. (Tax software is a substitute in consumption for tax accounting. The new software causes demand for tax accounting to decrease (shift to the left).)

Which curve shifts, and in what direction, when the following events occur in the tax accounting market? "It is almost tax day (April 15)!"

Demand increases. (People must file their taxes on time so they will go to their tax accountant. This will cause demand to increase (shift to the right).)

If a product becomes more popular, At the new equilibrium, will price be higher or lower?

Higher (A rightward shift of the demand curve indicates that consumers are willing and able to buy a larger quantity at every price. As a consequence, a new equilibrium is established at a higher price and greater quantity.)

If a product becomes more popular, At the new equilibrium, will quantity be higher or lower?

Higher (A rightward shift of the demand curve indicates that consumers are willing and able to buy a larger quantity at every price. As a consequence, a new equilibrium is established at a higher price and greater quantity.)

When a price ceiling is set for a market, the quantity demanded will be

greater than the equilibrium quantity, and price will be less than the equilibrium price. (Quantity demanded for a good with a price ceiling is greater than what suppliers are willing and able to supply. Quantity demanded is also greater than equilibrium quantity.)

In the market for burritos, if the population increases, At the new equilibrium, will price be higher or lower?

higher. (A rightward shift of the demand curve causes a new equilibrium to be established at a higher price and higher quantity.)

In the market for burritos, if the population increases, At the new equilibrium, will quantity be higher or lower?

higher. (A rightward shift of the demand curve causes a new equilibrium to be established at a higher price and higher quantity.)

In the market for blue shirts, if more sellers entered the market, At the new equilibrium, will quantity be higher or lower?

higher. (A rightward shift of the supply curve causes a new equilibrium to be established at a lower price and higher quantity.)

Which curve shifts, and in which direction, when the following events occur in the domestic car market? The price of gasoline increases.

Demand shifts to the left. (Gasoline and cars are complementary goods in consumption. Most cars require gasoline to run. If one of the complementary goods becomes more expensive, it will cause a decrease in demand for the other good. In this example, an increasing price of gasoline will lead to a decrease in demand for domestic cars. In other words, demand for domestic cars will shift to the left.)

Which curve shifts, and in which direction, when the following events occur in the domestic car market? The U.S. economy falls into a recession.

Demand shifts to the left. (When the U.S. economy falls into a recession, consumer incomes in the United States are lower and thus demand for cars, including domestic cars, decreases. In other words, demand shifts to the left.)

Which curve shifts, and in which direction, when the following events occur in the domestic car market? Imported cars become more expensive.

Demand shifts to the right. (Imported and domestic cars are substitute goods in consumption. This means that when a consumer wants to buy a car, he or she can choose from an imported or a domestically produced car. When imported cars become more expensive, people are more likely to buy the relatively less expensive domestic cars, increasing demand for domestic cars. In other words, demand shifts to the right.)

In September 2014 Apple was selling a gold version of the 128GB iPhone 6 for $949. Two days later that phone was advertised on eBay for a starting bid of $1,625. This was evidence of a market

Shortage (This is an example of a shortage. When a market shortage exists, not all consumer demand can be satisfied. Some people who are willing to buy the iPhone at the going price ($949) will not be able to do so. If there is a shortage, quantity demanded exceeds quantity supplied and the price will start to rise, sometimes dramatically.)

If a product becomes more popular, Along which curve will price and quantity move?

Supply (An increase in demand moves price and quantity along the unchanging supply curve.)

Which curve shifts, and in what direction, when the following events occur in the tax accounting market? There is a change in the law and tax accountants now only need one year of training to prepare taxes.

Supply increases. (It is now easier to become a tax accountant. This will cause supply to increase (shift to the right).)

Which curve shifts, and in which direction, when the following events occur in the domestic car market? U.S. autoworkers go on strike.

Supply shifts to the left. (If U.S. autoworkers go on strike, domestic car production slows or comes to a halt, decreasing the supply of domestic cars. In other words, supply shifts to the left.)

When a price floor is established above the equilibrium price, the market will demonstrate

a greater quantity supplied. (A price floor establishes a price above equilibrium reducing quantity demanded and increasing quantity supplied. This means that the market is no longer in equilibrium so we cannot say what happens to equilibrium quantity.)

A price floor is

a lower limit on the price of a good. (A price floor is a minimum price imposed by the government for a good or service.)

Rent controls are an example of

a price ceiling. (Many large cities have imposed rent controls which is an upper limit imposed on the price of housing. This is a price ceiling.)

Government price guarantees for certain crops are an example of

a price floor. (If the government sets a price for a product to guarantee a certain price for producers this is a price floor.)

If a state adopts a free college tuition program, ceteris paribus, economists expect there to be a

a shortage of college education opportunities in the state. (If everyone who wanted to have a college education could have one for free, there would be a shortage of resources to provide the education to everyone who wanted one. This would be driven by a sharp increase in quantity demanded with a simultaneous decrease in the quantity supplied as some education suppliers would no longer be willing and able to supply to the market.)

A price ceiling is

an upper limit on the price of a good. (A price ceiling is the upper limit imposed on the price of a good or service.)

A market shortage is

caused by a price ceiling. (A market shortage occurs when, at a given price, quantity demanded exceeds quantity supplied.)

A price ceiling does all of the following except

create excess supply. (A price ceiling decreases quantity supplied and so there would likely not be a shortage as a result.)

A price floor

creates a market surplus. (A price floor may guarantee a price that is above the market equilibrium. If this is the case, producers will be willing to supply more than consumers demand creating a surplus.)

Which curve shifts, and in what direction, when the following events occur in the local burrito shop market? Several pizza shops open.

demand decreases. (The number and availability of alternate lunch spots (substitutes in consumption) increases when more pizza shops open. This causes demand for burritos to decrease (shift to the left).)

Which curve shifts, and in what direction, when the following events occur in the local burrito shop market? College students arrive back into town for the fall semester.

demand increases. (The number of buyers of burritos increases when students return to town. This will cause demand to increase (shift to the right).)

Which curve shifts, and in what direction, when the following events occur in the iPhone market? The economy is in a recession.

demand shifts to the left. (Incomes fall when an economy is in a recession. This causes demand for iPhones to decrease (shift to the left).)

Which curve shifts, and in what direction, when the following events occur in the iPhone market? Samsung comes out with a really awesome phone.

demand shifts to the left. (The number and availability of alternate phones (substitutes in consumption) increases when a competitor comes out with a new phone. This causes demand for iPhones to decrease (shift to the left).)

Shortages are the same thing as excess

demand. (A shortage exists when the current price is too low relative to equilibrium, leading some suppliers to no longer produce in the market. As a result, the increase in the quantity demanded is no longer met.)

In the market for blue shirts, if more sellers entered the market, Along which curve will price and quantity move?

demand. (An increase in supply moves price and quantity along the unchanging demand curve.)

In the market for burritos, if incomes decrease (and burritos are normal goods), Which curve will shift?

demand. (If incomes decrease (and burritos are normal goods), demand will decrease for burritos. In other words, demand will shift leftward.)

In the market for blue shirts, if people now prefer yellow shirts, Which curve will shift?

demand. (If people now prefer yellow shirts, demand will decrease for blue shirts. In other words, demand will shift leftward.)

In the market for burritos, if the population increases, Which curve will shift?

demand. (If the population increases, demand will increase for burritos. In other words, demand will shift rightward.)

In the market for blue shirts, if people now prefer yellow shirts, At the new equilibrium, will price be higher or lower?

lower. (A leftward shift of the demand curve causes a new equilibrium to be established at a lower price and lower quantity.)

In the market for blue shirts, if people now prefer yellow shirts, At the new equilibrium, will quantity be higher or lower?

lower. (A leftward shift of the demand curve causes a new equilibrium to be established at a lower price and lower quantity.)

In the market for burritos, if incomes decrease (and burritos are normal goods), At the new equilibrium, will price be higher or lower?

lower. (A leftward shift of the demand curve causes a new equilibrium to be established at a lower price and lower quantity.)

In the market for burritos, if incomes decrease (and burritos are normal goods), At the new equilibrium, will quantity be higher or lower?

lower. (A leftward shift of the demand curve causes a new equilibrium to be established at a lower price and lower quantity.)

In the market for blue shirts, if more sellers entered the market, At the new equilibrium, will price be higher or lower?

lower. (A rightward shift of the supply curve causes a new equilibrium to be established at a lower price and higher quantity.)

In the market for web design services, if businesses expect consumers to make more on-line purchases, then the equilibrium

price of web design services will increase. (If firms expect consumers will want more web services in the future, then they expect that demand will increase. This impacts their choices today because they know that if they are able to prepare for the future, they can take advantage of higher prices later. As a result, supply today is reduced as firms wait for higher prices to come. This leftward shift of supply causes equilibrium price today to rise.)

If a state decides to reduce the cost of college tuition by providing more Pell grants to students then, ceteris paribus, the

quantity demanded of a college education in the state will increase. (If college tuition becomes more affordable to more people, this is the same as a decrease to the price of college. Since this is the price to own, the quantity demanded for a college education will increase as we move along a demand curve.)

In the market for web design services, when more companies desire web pages, the equilibrium

quantity of web design services increases. (If more companies desire web services demand shifts to the right, increasing equilibrium output.)

Which curve shifts, and in what direction, when the following events occur in the local burrito shop market? Two more Chipotle restaurants open.

supply increases. (The number of sellers of burritos increases when two more Chipotle restaurants open. This will cause supply to increase (shift to the right).)

Which curve shifts, and in what direction, when the following events occur in the iPhone market? Apple moves its manufacturing facilities to locations that have lower wages.

supply shifts to the right. (This is an example of a decrease in the cost to produce iPhones. This will cause supply to increase (shift to the right).)

In the market for blue shirts, if people now prefer yellow shirts, Along which curve will price and quantity move?

supply. (A decrease in demand moves price and quantity along the unchanging supply curve.)

In the market for burritos, if incomes decrease (and burritos are normal goods), Along which curve will price and quantity move?

supply. (A decrease in demand moves price and quantity along the unchanging supply curve.)

Surpluses generate excess

supply. (A surplus exists when the quantity supplied exceeds the quantity demanded. This means that supply is in excess of current demand.)

In the market for burritos, if the population increases, Along which curve will price and quantity move?

supply. (An increase in demand moves price and quantity along the unchanging supply curve.)

In the market for blue shirts, if more sellers entered the market, Which curve will shift?

supply. (If more sellers entered the market, supply will increase for blue shirts. In other words, supply will shift rightward.)