CHAP 3

Refer to the diagram. A decrease in quantity supplied is depicted by a

move from point x to point y.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. A decrease in the price of a product that is a complement to X will

increase D, increase P, and increase Q.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in resource prices will

increase equilibrium price and decrease equilibrium quantity.

When the price of Nike soccer balls rose, Ronaldo purchased fewer Nike soccer balls. Which of the following best explains Ronaldo's decision to buy fewer Nike soccer balls?

the income effect

According to the concept of diminishing marginal utility, consumers will purchase more of a good when the price rises because

this statement is incorrect, consumers will not purchase more of a good when prices rise, ceteris paribus.

A market is in equilibrium

when quantity demanded equals quantity supplied.

Which of the diagrams illustrate(s) the effect of an increase in incomes on the market for second-hand clothing?

B only

A rightward shift of a product supply curve might be caused by

an improvement in the relevant technique of production.

A lower price increases the quantity demanded for a product because

Individuals can afford more of the product and will buy less of its substitutes

Refer to the above graph showing the market for a product. Which of the following would best explain why a shift in demand from D2 to D1 would cause price to fall from P2 to P1?

After the shift in the demand, there would be a surplus at price P2.

A decrease in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect on equilibrium price will be indeterminate.

FALSE

Consumers buy more of normal goods as their incomes fall.

FALSE

An effective price floor in a competitive market will result in persistent surpluses of a product.

TRUE

An increase in quantity supplied is not caused by an increase in production costs.

TRUE

If market demand increases and market supply decreases by a relatively larger amount, equilibrium price will rise and equilibrium quantity will definitely fall.

TRUE

A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would increase the demand for marijuana. Based on this information we can conclude that

beer and marijuana are substitute goods.

Given a downsloping demand curve and an upsloping supply curve for a product, a decrease in the price of a substitute good (from the buyer's perspective) will

decrease equilibrium price and quantity for the product.

Over time, the equilibrium price of a gigabyte of computer memory has fallen, while the equilibrium quantity purchased has decreased. Based on this we can conclude that

decreases in the demand for computer memory have exceeded increases in supply.

An effective price floor will

result in excess supply.

When the price of a product increases, a consumer will search for the product's alternative. This describes the

substitution effect.