Homework #3

Assume that the market for Good X is defined as follows: QD = 64 - 16P and QS = 16P. What is producer surplus in this market? A. We don't have enough information to determine producer surplus. B. $24 C. $64 D. $32 E. $2

D. $32

Assume that Qd = 80-2P and Qs = 2P-20. Equilibrium price and quantity are respectively A. $20,10 B. $60, 40 C. $10, 20 D. $15, 10 E. $25, 30

E. $25, 30

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

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

Suppose the income of buyers in a market for an inferior good decreases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. None of the above is correct.

b. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Which of the following would cause price to increase? a. a surplus of the good b. a shortage of the good c. a decrease in demand d. an increase in supply

b. a shortage of the good

Suppose buyers of computers and printers regard the two goods as complements. Then an increase in the price of computers will cause a(n) a. decrease in the supply of printers and a decrease in the quantity demanded of printers. b. decrease in the demand for printers and a decrease in the quantity supplied of printers. c. increase in the equilibrium price of printers and a decrease in the equilibrium quantity of printers. d. decrease in the equilibrium price of printers and an increase in the equilibrium quantity of printers.

b. decrease in the demand for printers and a decrease in the quantity supplied of printers.

During the last few decades in the United States, health officials have argued that eating too much beef might be harmful to human health. As a result, there has been a significant decrease in the amount of beef produced. Which of the following best explains the decrease in production? a. Anti-beef protesters have made it difficult for both buyers and sellers of beef to meet in the marketplace. b. Beef producers, concerned about the health of their customers, decided to produce relatively less beef. c. Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce. d. Government officials, concerned about consumer health, ordered beef producers to produce relatively less beef.

c. Individual consumers, concerned about their own health, decreased their demand for beef, which lowered the equilibrium price of beef, making it less attractive to produce.

Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase? a. Price will fall. b. The price change will be ambiguous. c. Price will rise. d. Price will stay exactly the same.

c. Price will rise.

Equilibrium quantity must decrease when demand a. increases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. b. decreases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. c. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease. d. increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease.

c. decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

Suppose roses are currently selling for $40 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a a. shortage to exist and the market price of roses to decrease. b. surplus to exist and the market price of roses to increase. c. surplus to exist and the market price of roses to decrease. d. shortage to exist and the market price of roses to increase.

c. surplus to exist and the market price of roses to decrease.

Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become popular, then how will this affect the market for saddle shoes? a. The supply curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity. b. The supply curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. c. The demand curve for saddle shoes will shift right, which will create a surplus at the current price. Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new market equilibrium will be at a lower price and higher quantity. d. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.

d. The demand curve for saddle shoes will shift right, which will create a shortage at the current price. Price will increase, which will decrease quantity demanded and increase quantity supplied. The new market equilibrium will be at a higher price and higher quantity.

Which of the following events must cause equilibrium quantity to fall? a. demand increases and supply decreases b. demand and supply both increase c. demand decreases and supply increases d. demand and supply both decrease

d. demand and supply both decrease