Problem Set #3

Suppose the price of good X increases. If X and Y are substitutes, then, in the market for good Y, we would expect: a An increase in both the equilibrium price and quantity. b A decrease in the equilibrium price and an increase in the equilibrium quantity. c An increase in the equilibrium price and a decrease in the equilibrium quantity. d A decrease in both the equilibrium price and quantity.

a An increase in both the equilibrium price and quantity.

Consider the supply and demand diagram drawn below. Suppose that demand is initially D1, but, following a change in consumer preferences, demand shifts to D2. Note that the two demand curves are parallel. Which of the following statements is TRUE? a Demand increases by 30 units. b Quantity demanded increases by 30 units. c Equilibrium quantity increases by 30 units. d More than one of the above statements is true.

a Demand increases by 30 units.

A severe freeze has once again damaged the Florida orange crop. The impact on the market for orange juice will be a leftward shift of: a the supply curve. b the demand curve, as consumers try to economize because of the shortage. c both the supply and demand curves. d the supply curve and a rightward shift of the demand curve, resulting in a higher equilibrium price.

a the supply curve.

A recent news story reported that OPEC is expected to decrease the supply of oil next summer. Summer is traditionally a time of increased demand for oil because of the many families driving and flying to vacation sites. What would be the combined effect of these two activities on the summer market for gasoline? Remember, drawing the graph will help, and also remember that magnitude matters. a An increase in the equilibrium price and the quantity. b An increase in the equilibrium price and an unpredictable change in the equilibrium quantity. c An unpredictable change in both the equilibrium price and the quantity. d An unpredictable change in the equilibrium price and a decrease in the equilibrium quantity.

b An increase in the equilibrium price and an unpredictable change in the equilibrium quantity.

A price floor of P1 causes: a Excess demand equal to the distance AB. b Excess supply equal to the distance AB. c Excess supply equal to the distance DE. d Excess demand equal to the distance DE.

b Excess supply equal to the distance AB.

Consider the supply and demand curve diagram below. If the price of this good is $6, then: a There is an excess demand (a shortage) equal to 210 units. b There is an excess demand (a shortage) equal to 140 units. c There is an excess supply (a surplus) equal to 210 units. d There is an excess supply (a surplus) equal to 140 units.

b There is an excess demand (a shortage) equal to 140 units.

Refer to the diagram below. At a price of $10 per unit: a There is excess demand (a shortage) equal to 45 units. b There is excess supply (a surplus) equal to 45 units. c There is excess demand (a shortage) equal to 20 units. d There is excess supply (a surplus) equal to 20 units.

b There is excess supply (a surplus) equal to 45 units.

Refer to the supply and demand diagram below. At the equilibrium price in this market, consumer surplus is equal to area ______________ and producer surplus is equal to area ______________ a a + b; c. b a; b + c. c a + b; b + c. d a + b + c; d + f.

b a; b + c.

Which of the following would reduce the supply of microcomputers? a a technological improvement that lowers the cost of producing the computers b higher wage rates for the workers that assemble the computers c a reduction in the price of computer chips used to produce the computers d a reduction in the price of computers.

b higher wage rates for the workers that assemble the computers

Which of the following statements about consumer and producer surplus is TRUE? a Consumer surplus is equal to the maximum amount a consumer is willing to pay for a good, minus what the consumer has to pay for the good. b Producer surplus is equal to the amount received from selling a good, minus the minimum amount the seller needed to receive, in order to be willing to sell the good. c Both a) and b) are true. d Neither a) nor b) are true.

c Both a) and b) are true.

If an increase in the price of Good X causes a decrease in the demand for Good Y, we can conclude that: a the price of Good Y will increase. b Goods X and Y are normal goods. c Goods X and Y are substitute goods. d Goods X and Y are complement goods.

d Goods X and Y are complement goods.

Which of the following statements about consumer surplus and producer surplus is TRUE? a Consumer surplus is equal to the total area under the demand curve. b Producer surplus is equal to the area under the supply curve. c Both producer and consumer surplus are equal to price multiplied by quantity. d None of the above statements is true.

d None of the above statements is true.