CHAPTER 4: Equilibrium

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

decrease in the supply of wine, increasing price

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

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

fall

If the supply of oil decreased, the _________ curve could shift to the _________.

supply; left

From the early twentieth century to the 1970s, major oil discoveries and improved production techniques meant that:

the supply of oil increased even faster than demand for oil.

Vernon Smith began his laboratory experiments expecting:

to prove that the supply and demand model was wrong

The financial crisis of 2007-2010 had a huge impact on the US housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. Which is the best analysis of this situation?

This surplus of houses led to a decrease in prices.

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

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

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.

What would happen if the demand for oil increased?

quantity supplied would increase

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

supply; fall; quantity demanded to increase

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 the quantity demanded?

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

An undergraduate student participates in a supply and demand experiment in his managerial economics course. What can he expect the laboratory experiment to reveal about the supply and demand model?

It successfully predicts real-life behavior.

In Vernon Smith's supply and demand lab experiment:

Smith knew the true demand and supply curves, but the subjects did not.

What does an increase in demand do the the demand curve?

The curve shifts up and to the right, because buyers are willing to purchase more at any given price.

In the late 1990s, Beanie Babies became very popular collectible toys. Many buyers spent a great deal of time visiting multiple retail locations to find specific Beanie Babies that retailers had a very hard time keeping in stock. What probably describes the eBay prices for Beanie Babies during that time?

The eBay prices were higher than the retail prices because the retail prices led to shortages of Beanie Babies.

A surplus occurs when the quantity supplied is ________ the quantity demanded.

greater than

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

higher

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

increased demand for oil, causing prices to rise

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of those guitars on the used market.