Econ Module 5 Equilibrium

Buyers who value this good more than price are represented by which line segment? a AC b CE c BC d CD

a AC

In the above figure, sellers whose costs are greater than price are represented by segment a CD b BC c CE d AC

a CD

Which of the four graphs represents the market for pizza delivery in a college town as we go from summer to the beginning of the fall semester? a A b B c C d D

a A

If a surplus exists in a market we know that the actual price is a above equilibrium price and quantity supplied is greater than quantity demanded. b above equilibrium price and quantity demanded is greater than quantity supplied. c below equilibrium price and quantity demanded is greater than quantity supplied. d below equilibrium price and quantity supplied is greater than quantity demanded.

a above equilibrium price and quantity supplied is greater than quantity demanded.

Given the demand (D) and supply (S) for gasoline in the figure above, if the price of gasoline were $1 per gallon, a consumers would wish to purchase more than was being supplied. b producers would be supplying more than consumers wished to purchase. c the quantity consumers wished to purchase would equal the quantity that producers wished to supply. d there would be a tendency for the price of gasoline to fall.

a consumers would wish to purchase more than was being supplied.

When a shortage occurs in the market for a good, quantity a demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. b supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. c demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. d supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

a demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.

Prices direct economic activity in a market economy by a influencing the actions of buyers and sellers. b reducing scarcity of the goods and services produced. c eliminating the need for government intervention. d allocating goods and services in the most equitable way.

a influencing the actions of buyers and sellers.

Given the figure above, if the government mandated a price increase from Pe to a higher price, then a total surplus would decrease. Your answer b consumer surplus would increase. c total surplus would increase, since producer surplus would increase. d total surplus would remain unchanged.

a total surplus would decrease. Your answer

Markets coordinate output decisions by pushing a up price when there is a shortage. b down price when quantity demanded exceeds quantity supplied. c up price when there is a surplus. d up price when quantity supplied exceeds quantity demanded.

a up price when there is a shortage.

Given the supply and demand conditions illustrated above, the equilibrium price of steak is (10=5 8=4 6=3 4=2 2=1) a $4 b $3 c $2 d $1

b $3

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? a An increase in the price of wool shirts and a decrease in the price of raw cotton. b A decrease in the price of wool shirts and a decrease in the price of raw cotton. Your answer c An increase in the price of wool shirts and an increase in the price of raw cotton. d A decrease in the price of wool shirts and an increase in the price of raw cotton.

b A decrease in the price of wool shirts and a decrease in the price of raw cotton.

Which of the four graphs represents the market for winter coats as we progress from winter to spring? a A b B c C d D

b B

Buyers who value this good less than price are represented by which line segment in the above figure? a AC b CE c BC d CD

b CE

Which of the following suggests that the "laws" of supply and demand are being disobeyed? a Outside forces disturb an equilibrium. b Persistent shortages or surpluses occur. Your answer c The market never moves from an equilibrium. d "Other things" not always are equal.

b Persistent shortages or surpluses occur. Your answer

Suppose both the equilibrium price and quantity rise for a particular product. Which of the following best explains this situation? a Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand. b Supply and demand simultaneously increased and the shift in supply was less than the shift in demand. c Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand. d Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

b Supply and demand simultaneously increased and the shift in supply was less than the shift in demand.

In the figure above, if the initial demand and supply for soybeans were D1 and S1, how would a decrease in the cost of producing soybeans affect the market for soybeans? a Demand would increase to D2, price would increase to P2, and the quantity would increase to S. b Supply would increase to S2, price would decrease to P0, and the quantity would increase to S. c Both demand and supply would increase so the price would remain at P1, but the quantity would increase to T. d None of the above would occur.

b Supply would increase to S2, price would decrease to P0, and the quantity would increase to S.

In the figure above, if the initial demand for margarine were D1, the impact of a decrease in the price of butter, a substitute good for margarine, would be illustrated as a a shift in the demand curve to D2. b a shift in the demand curve to D3. c a movement downward to the right along the original demand curve D1. d none of the above.

b a shift in the demand curve to D3.

In the figure above, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D1 to D2(to the right)? a an increase in the price of milk, an ingredient used to produce ice cream b an increase in the price of frozen yogurt, a substitute for ice cream c a decrease in the price of sugar, an ingredient used to produce ice cream d a decrease in consumer income

b an increase in the price of frozen yogurt, a substitute for ice cream

When an unusually bad frost reduces the apple crop in Washington state, the price of canned apple juice may rise immediately in supermarkets, even though the juice on the shelves was made from last year's plentiful crop. The invisible hand theory tells us that the profit-seeking merchants who raise their prices in such situations a are hurting the economy, since the juice now on the shelves was produced at a lower cost. b are profiting by rationing the juice, which is now more scarce to the consumers willing to pay the most for the now more limited supply. c are ignoring the motivating function of prices, which the invisible hand theory holds should be set according to the cost paid by the merchant. d will not actually profit since they are ignoring a basic economic rule: Only raise prices when consumer demand increases.

b are profiting by rationing the juice, which is now more scarce to the consumers willing to pay the most for the now more limited supply.

In many cases, competitive markets help promote the efficient use of resources a only if buyers and sellers really care, personally, about economic efficiency. b even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. c even if business firms fail to produce goods efficiently. d if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

b even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use.

When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were a seeking to profit from society's needs rather than following the guidance of the invisible hand, which would have led them to seek jobs serving society rather than jobs with higher pay. b following the guidance of the invisible hand and probably serving society's best interests as well as their own. c causing oil prices to rise even more by moving to jobs with higher salaries. d helping themselves but hurting the economy.

b following the guidance of the invisible hand and probably serving society's best interests as well as their own.

A shortage occurs whenever a quantity demanded exceeds quantity supplied at the equilibrium price. b price is less than equilibrium price. c quantity demanded is less than quantity supplied. d goods are scarce. e some of the people who need the product are not willing and able to buy it at the equilibrium price.

b price is less than equilibrium price.

When there is excess demand for a product in a market, a price will tend to fall. b price must be below the equilibrium price. c price must be above the equilibrium price. d producers will reduce output and sales will fall.

b price must be below the equilibrium price.

In the figure above, if D and S represent the demand and supply for gasoline, what is the equilibrium price and quantity? a price, $1; quantity, 20 b price, $2; quantity, 30 c price, $3; quantity, 40 d price, $4; quantity, 50

b price, $2; quantity, 30

Given the demand (D) and supply (S) for gasoline in the above figure, if the price of gasoline were $3 per gallon, a consumers would wish to purchase more than was being supplied. b producers would be supplying more than consumers wished to purchase. c the quantity consumers wished to purchase would equal the quantity that producers wished to supply. d there would be a tendency for the price of gasoline to rise.

b producers would be supplying more than consumers wished to purchase.

If equilibrium is present in a market, a there is generally either a shortage or a surplus. b quantity demanded equals quantity supplied. c quantity demanded exceeds quantity supplied. d quantity supplied exceeds quantity demanded.

b quantity demanded equals quantity supplied.

If the price of a good is below the equilibrium price, a suppliers will find inventories building; they will cut output and raise prices. b suppliers will find inventories being depleted. They will increase production and raise prices. c the demand curve will shift down until an equilibrium is established at the existing price. d the supply curve will shift up until an equilibrium is established at the existing price.

b suppliers will find inventories being depleted. They will increase production and raise prices.

The figure above shows conditions in the market for beef. A reduction in the price of the grain used to feed cattle results in a the supply curve for beef shifting to the left resulting in higher beef prices and a lower quantity sold. b the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold. c the demand curve for beef shifting to the left resulting in lower beef prices and a lower quantity sold. d the demand curve for beef shifting to the right resulting in higher beef prices and a higher quantity sold.

b the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.

The price of a good will tend to fall when a there is excess demand for the good. b there is excess supply of the good. c demand for the good increases. d the supply of the good decreases.

b there is excess supply of the good.

Which of the following events would result in an increase in equilibrium price and an uncertain change in equilibrium quantity? a An increase in supply and an increase in demand. b An increase in supply and a decrease in demand. c A decrease in supply and an increase in demand. d A decrease in supply and a decrease in demand.

c A decrease in supply and an increase in demand.

Which of the four graphs represents the market for cars as a result of the adoption of new technology on assembly lines? a A b B c C d D

c C

A new study on the health benefits of vitamin C has caused more people to prefer orange juice.Ê At the same time, a freeze in Florida has devastated the orange crop.Ê Given these two effects, what can we say about the equilibrium price and quantity of orange juice? a Equilibrium quantity will decrease, equilibrium price will increase. b Equilibrium price will decrease; the effect on quantity is ambiguous. c Equilibrium price will increase; the effect on quantity is ambiguous. d Equilibrium quantity will increase; the effect on price is ambiguous.

c Equilibrium price will increase; the effect on quantity is ambiguous.

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence? a Gas station owners anticipate consumers will buy more gasoline as gasoline prices increase. b Gas station owners are attempting to repeal the laws of supply and demand. c Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost. d A decline in consumer demand generally causes gas station owners to raise their prices.

c Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost.

In the figure above, the initial demand for margarine were D1, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as a a shift in the demand curve to D2. b a shift in the demand curve to D3. c a movement upward to the left along the original demand curve D1. d none of the above.

c a movement upward to the left along the original demand curve D1.

When competition is present and property rights protected and enforced, market prices will a discourage profit-seeking business firms from producing efficiently. b direct entrepreneurs toward production of goods that are inferior in quality. c encourage self-interested individuals to develop skills that are expected to be valuable in the future. d always decrease.

c encourage self-interested individuals to develop skills that are expected to be valuable in the future.

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in a fixation. b excess supply. c equilibrium. d excess demand.

c equilibrium.

Suppliers recognize there is a shortage in the market for their product when they notice that. a the quantity supplied exceeds the quantity demanded. b the quantity demanded is falling. c inventories are falling. d production exceeds new orders for the product. e government economists announce a shortage exists.

c inventories are falling.

Free market prices will eliminate a scarcity. b equilibrium. c shortages and surpluses. d changes in supply and demand.

c shortages and surpluses.

When experts first predicted major weather-related coffee crop failures in Central and South America in 1986, the price of coffee already on grocery shelves in the United States increased sharply. When coffee became temporarily more scarce, the usefulness to society of "coffee conservation" increased. The immediate sharp price increase (which soon leveled off) gave consumers an incentive to a buy all the coffee they could at the higher prices and hoard it, since there was obviously a shortage. b drink as much coffee as possible at the higher price. c start conserving coffee immediately and switch to other beverages if it was easy to do so. d ignore the price of coffee and drink it as they normally would.

c start conserving coffee immediately and switch to other beverages if it was easy to do so.

Which of the following is true regarding the market for steak shown above? 10=5 8=4 6=3 4=2 2=1 a If the price of steak were $2 per pound, producers would want to supply less steak than consumers would want to buy. b If the price of steak were $4 per pound, producers would want to supply more steak than consumers would want to buy. c If the price of steak were $3 per pound, producers would want to supply the same amount of steak that consumers would want to buy. d All of the above are true regarding the market for steak shown in the figure.

d All of the above are true regarding the market for steak shown in the figure.

Sellers whose costs are less than price are represented by which line segment in the above figure? a AC b CE c CD d BC

d BC

Which of the four graphs illustrates a decrease in quantity demanded? a A b B c C d D

d D

Which of the four graphs represents the market for peanut butter after a major hurricane hits the peanut-growing south? a A b B c C d D

d D

An add in the newspaper claims that the price of milk will increase next week.Ê At the same time, a new and improved pasteurization process makes milk production more efficient. Given these two effects, what can we say about the equilibrium price and quantity of milk? a Equilibrium quantity will decrease, equilibrium price will increase. b Equilibrium price will decrease; the effect on quantity is ambiguous. c Equilibrium price will increase; the effect on quantity is ambiguous. d Equilibrium quantity will increase; the effect on price is ambiguous.

d Equilibrium quantity will increase; the effect on price is ambiguous.

If the supply of a good increased, what would be the effect on the equilibrium price and quantity? a Price would increase and quantity would decrease. b Price would decrease and quantity would decrease. c Price would increase and quantity would increase. d Price would decrease and quantity would increase.

d Price would decrease and quantity would increase.

Which of the following is not a function of prices in a market system? a Prices have the crucial job of balancing supply and demand. b Prices send signals to buyers and sellers to help them make rational economic decisions. c Prices coordinate economic activity. d Prices ensure an equitable distribution of goods and services among consumers.

d Prices ensure an equitable distribution of goods and services among consumers.

Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation? a Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand. b Supply and demand simultaneously increased and the shift in supply was less than the shift in demand. c Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand. d Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

d Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

A hurricane damaged much of the housing in Miami. Shortly thereafter, the price of plywood rose significantly. The events suggest that a a decrease in the supply of plywood caused the price of plywood to rise. b an increase in the supply of plywood caused the price of plywood to rise. c a decrease in the demand for plywood caused the price of plywood to rise. d an increase in the demand for plywood caused the price of plywood to rise.

d an increase in the demand for plywood caused the price of plywood to rise.

Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity? a an increase in the price of crude oil, a key ingredient required for the production of gasoline b the introduction of a miracle carburetor that substantially improves the gas mileage of automobiles c a recession that substantially reduces the income of households d an increase in the popularity and use of Sport Utility Vehicles that consume aÊlot of gasoline per mile driven

d an increase in the popularity and use of Sport Utility Vehicles that consume a lot of gasoline per mile driven

In 1986, the price of coffee increased sharply because of a major earthquake and weather-induced crop failures. As a result, conservation was immediately practiced mainly by those consumers who a were committed to environmental conservation. b were most aware of the world market situation for coffee from reading the newspaper. c happened to follow world weather patterns. d considered the prices of products when they made decisions about buying them.

d considered the prices of products when they made decisions about buying them.