Macroeconomics 231 chapter 4

After a hurricane in Florida destroys half of the orange crop, economists predict:

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

Gains from trade will be maximized at the free market equilibrium price and quantity because the supply of goods is:

bought by the buyers who have the highest willingness to pay.

When Asian countries went into a recession in 1997, the demand for oil _______ and the price of oil ________.

decreased; decreased

In the figure, the demand curve shifted from D 0 to D 1. To describe this movement, we would say that:

demand increased, which caused an increase in quantity supplied.

If market demand decreases:

equilibrium price and quantity will both decrease.

If market supply increases:

equilibrium price will decrease but equilibrium quantity will increase.

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

fall.

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

remain the same.

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

rise.

(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

$1,000

Refer to the figure. When the supply curve shifts from S 0 to S 1, the equilibrium price rises to:

$12 and the equilibrium quantity falls to 70.

(Figure: Price and Quantity 1) In the diagram, at which price is there a surplus?

$80

(Figure: Price and Quantity 2) At a cost of $20 per unit in the diagram, the value of the unexploited gains from trade is:

$900.

(Figure: Price and Quantity 3) The value of wasted resources at a quantity of 80 units in the diagram is:

$900.

(Figure: Price and Quantity 1) In the diagram, at a price of $40, the quantity demanded is ______, the quantity supplied is ______, and there is a ______.

60; 40; shortage of 20 units

What will happen in the market for cotton as a result of a severe drought?

The supply of cotton will decrease, causing the equilibrium price to rise and equilibrium quantity to fall.

(Figure: Demand and Supply) Refer to the figure. Which statement is TRUE?

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 D 1 and the initial supply curve is S 1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases?

D1 will shift to D2.

(Figure: Market Changes) Refer to the figures. If these figures represent the market for blue jeans, which figure shows the effect of an increase in the price of denim, a raw material used to make jeans?

Figure A

Which of the four panels shows an increase in income on an inferior good?

Panel A

(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D 1 and the initial supply curve is S 1. If technological innovations lower the costs of production, what will happen?

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

After adjusting for inflation, a comparison of the price of leg warmers reveals that the price of leg warmers was significantly higher in the 1980s than it is today. Which of the following can explain this?

Since the 1980s jeans have become preferable to leg warmers, decreasing the demand for leg warmers.

The U.S. government limits the importation of Chinese-made bras. What effect does this trade restriction have on the market for bras?

The equilibrium price will increase and the equilibrium quantity will decrease.

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.

Imagine a free market in equilibrium. After a sudden increase in demand (but before the price can adjust), the market experiences:

a shortage.

What happens as a result of the change in demand in the diagram?

an increase in both the equilibrium price and the equilibrium quantity

Charcoal bricks are considered a normal good in India's economy. As income rises, the demand for charcoal bricks that are used for heating will

increase.

In 1980 when Iraq attacked Iran, the price of oil _______ because of a(n) ______.

increased; disruption in the supply of oil

Which of the following would cause the current supply of iPods to increase?

producers expecting that the future price of iPods will decrease

Refer to the figure. If the price of the product is $14, there is a:

shortage of 50 units of the product, and the price will rise to $16.

(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a:

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

Imagine a free market in equilibrium. After a sudden decrease in supply (but before the price can adjust), the market experiences a:

shortage.

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

supply; fall; quantity demanded to increase

(Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $16, there would be a:

surplus of 10 units.

(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.