Chapter 4

A market shortage can be defined as a situation in which the quantity supplied in a market is greater than the quantity demanded, at the given price. True False

False

A market shortage can be defined as a situation in which the quantity supplied in a market is greater than the quantity demanded, at the given price. True False

False

An increase in demand causes an increase in quantity supplied, which causes a decrease in price. True False

False

An increase in quantity demanded is a shift in the entire demand curve. True False

False

(Table: Equilibrium Price, Quantity) Refer to the table. If the demand curve for the product shifted to the right such that 10 more units of the good are demanded at every price, what is the new equilibrium price? $12 $14 $16 $18

$16

(Figure: Basic Supply and Demand) In the diagram, the market price is stable only at a price of: $2. $3. $4. $50.

$3.

(Figure: Demand and Supply) Refer to the figure. At the equilibrium quantity, total surplus is: $960. $480. $320. $240

$480.

(Table: Equilibrium Adjustment) Refer to the table. The equilibrium price is: $2. $4. $6. $8.

$6.

(Figure: Chocolate) What is the equilibrium price per pound in the diagram? $4 $6 $8 $10

$8

Refer to the figure. When the demand curve shifts from D0 to D1, the equilibrium price rises to: $9 and the equilibrium quantity rises to 120. $9 and the equilibrium quantity rises to 160. $8 and the equilibrium quantity rises to 140. $8 and the equilibrium quantity rises to 160.

$8 and the equilibrium quantity rises to 140.

(Figure: Equilibrium) Refer to the figure. The equilibrium quantity (in units) is: 8. 10. 16. 12.

16.

(Figure: Equilibrium) Refer to the figure. The equilibrium price (in $) is: 8. 10. 16. 12.

8.

(Figure: Demand and Supply) Refer to the figure. Which statement is TRUE? The gains from trade are maximized at 20 units of output. At 16 units of output, there are unexploited gains from trade. Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit. A free market is likely to produce less than 12 units of output.

Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases? There is not enough information to determine what will happen. D1 will shift to D2. D1 will shift to D3. S1 will shift to S3.

D1 will shift to D2.

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied. True False

False

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied. True False

False

A decrease in supply raises the price of a good, but it also decreases the quantity demanded, which lowers the price of a good. The net effect on price is ambiguous. True False

False

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Resource prices in this market increase; at the same time, the consumer population declines as migration causes an outflow of population to other regions. What happens to the supply curve and/or demand curve? S1 shifts to S2 but then shifts back to S1. D1 remains at D1. S1 shifts to S3 and D1 shifts to D2. S1 shifts to S2 and D1 shifts to D3. S1 shifts to S2 and D1 shifts to D2.

S1 shifts to S2 and D1 shifts to D2.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop. S1 will shift to S2. D1 will shift to D2. S1 will shift to S3. There will be no change in supply or demand in the market for corn.

S1 will shift to S2.

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen? D1 will shift to D3 and equilibrium price and equilibrium quantity will increase. S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease. D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease. S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is uncertain. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is uncertain. The equilibrium price increases; the equilibrium quantity decreases.

The equilibrium price decreases; the change in the equilibrium quantity is uncertain.

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is uncertain. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is uncertain The equilibrium price increases; the equilibrium quantity decreases.

The equilibrium price increases; the change in the equilibrium quantity is uncertain

(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE? The equilibrium price is $3, and the equilibrium quantity is 60 units. The equilibrium price is $4, and the equilibrium quantity is 60 units. The equilibrium price is $2, and the equilibrium quantity is 40 units. The equilibrium price is $3, and the equilibrium quantity is 50 units.

The equilibrium price is $3, and the equilibrium quantity is 50 units.

(Figure: Chocolate) If the price in the diagram is $5, what will happen? The price will increase because of a shortage. The price will decrease because of a shortage. The price will increase because of a surplus. The price will decrease because of a surplus.

The price will increase because of a shortage.

A decrease in the supply of milk will lead to a decrease in the QUANTITY DEMANDED of milk. True False

True

A market surplus can be defined as a situation in which the quantity demanded in a market is less than the quantity supplied, at the given price. True False

True

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve. True False

True

An increase in supply causes a temporary surplus at the old equilibrium price. True False

True

(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE? When the price is $3, the quantity demanded exceeds the quantity supplied by 60 units. When the price is $2, the quantity demanded exceeds the quantity supplied by 40 units. When the price is $4, the quantity demanded is less than the quantity supplied by 40 units. When the price is $2, there is a tendency for the price to rise in the future.

When the price is $2, there is a tendency for the price to rise in the future.

After a hurricane in Florida destroys half of the orange crop, economists predict: an increase in both orange prices and orange sales. a decrease in both orange prices and orange sales. an increase in orange prices and a decrease in orange sales. a decrease in orange prices and an increase in orange sales.

an increase in orange prices and a decrease in orange sales.

A(n) ______ causes the equilibrium price to ______ and equilibrium quantity to ______. decrease in supply; rise; fall decrease in demand; fall; rise increase in supply; rise; rise increase in demand; rise; fall

decrease in supply; rise; fall

An early frost in the vineyards of Napa Valley would cause a(n): increase in the demand for wine, increasing price. increase in the supply of wine, decreasing price. decrease in the demand for wine, decreasing price. decrease in the supply of wine, increasing price.

decrease in the supply of wine, increasing price.

In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that: demand increased, which caused an increase in supply. quantity demanded increased, which caused an increase in supply. demand increased, which caused an increase in quantity supplied. quantity demanded increased, which caused an increase in quantity supplied.

demand increased, which caused an increase in quantity supplied.

A demand curve shows the relationship between: quantity demanded and quantity supplied, which are positively related. quantity demanded and quantity supplied, which are negatively related. price and quantity demanded, which are positively related. price and quantity demanded, which are negatively related.

price and quantity demanded, which are negatively related.

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Gulf War of 1991 all affected oil prices by: increasing the demand for oil. reducing the supply of oil. reducing the demand for oil. increasing the supply of oil.

reducing the supply of oil.

(Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $12, there would be a: shortage of 10 units. shortage of 45 units. surplus of 10 units. surplus of 35 units.

shortage of 10 units.

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a: surplus of 50 units would exist, and price would fall. surplus of 50 units would exist, and price would rise. shortage of 50 units would exist, and price would rise. shortage of 50 units would exist, and price would fall.

shortage of 50 units would exist, and price would rise.

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $8, then a: surplus of 25 units would exist, and price would tend to fall. surplus of 25 units would exist, and price would tend to rise. shortage of 25 units would exist, and price would tend to rise. shortage of 25 units would exist, and price would tend to fall.

surplus of 25 units would exist, and price would tend to fall.

An increase in demand causes a: temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity. permanent shortage, leaving the equilibrium price and quantity unchanged. temporary surplus at the old equilibrium price and a lower equilibrium price and quantity. temporary shortage at the old equilibrium price, a higher new equilibrium price, and a lower new equilibrium quantity.

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

A free market achieves an equilibrium price and quantity due to: the combined actions of buyers and sellers. increased competition among sellers. government regulations placed on market participants. buyers' ability to affect market outcomes.

the combined actions of buyers and sellers.