Chapter 3

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant. Price: Quantity b. Demand decreases and supply is constant. Price: Quantity: c. Supply increases and demand is constant. Price: Quantity: d. Demand increases and supply increases. Price: Quantity: e. Demand increases and supply is constant. Price: Quantity: f. Supply increases and demand decreases. Price: Quantity: g. Demand increases and supply decreases. Price: Quantity: h. Demand decreases and supply decreases. Price: Quantity:

(a) Supply decreases and demand is constant Prices increase, quantity decreases (b) Demand decreases and supply is constant Prices decrease, quantity decreases (c) Supply increases and demand is constant prices decrease, quantity increases (d) Demand increases and supply increases Prices indeterminate, quantity increases (e) Demand increases and supply is constant Prices increase, quantity increases (f) Supply increases and demand decreases Prices decrease, quantity indeterminate (g) Demand increases and supply decreases Prices increase, quantity indeterminate (h) demand decreases and supply decreases Quantity decreases, supply indeterminate

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of leather goods, and the price of leather goods?

Burning of millions of cattle carcasses leads to decrease in the supply of cattle hides in the country. Decrease in supply due to change in factors other than price shifts the supply curve leftwards and leads to increase in the price of cattle hides in the Europe. Since, leather goods are made up by using cattle hides so decrease in supply of cattle hides leads to fall in the supply of leather goods in the market. Decrease in supply of leather goods in the market keeping demand constant leads to leftward shift of supply curve and leads to increase in the price of leather goods.

In which of these two statements are the terms "supply" and "demand" used correctly? A. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." B. "The price of corn rises and falls in response to changes in supply and demand."

Statement B "The price of corn rises and falls in response to changes in supply and demand."

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be_________ of memory chips

Surplus

What effect will each of the following have on the supply of auto tires? (Keeping all else constant) a. A technological advance in the methods of producing tires: b. A decline in the number of firms in the tire industry: c. An increase in the prices of rubber used in the production of tires: d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): f. The levying of a per-unit tax on each auto tire sold g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:

a. A technological advance in the methods of producing tires: Increase b. A decline in the number of firms in the tire industry: Decrease c. An increase in the prices of rubber used in the production of tires: Decrease d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: Increase e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): Increase f. The levying of a per-unit tax on each auto tire sold: Decrease g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: Increase

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? a.Small automobiles become more fashionable: b.The price of large automobiles rises (with the price of small autos remaining the same): c.Income declines and small autos are an inferior good: d.Consumers anticipate that the price of small autos will greatly come down in the near future: e.The price of gasoline substantially drops:

a.Small automobiles become more fashionable: Increase b.The price of large automobiles rises (with the price of small autos remaining the same): Increase c.Income declines and small autos are an inferior good: Increase d.Consumers anticipate that the price of small autos will greatly come down in the near future: e.The price of gasoline substantially drops: Cannot be determined

A price ceiling will result in a shortage only if the ceiling price is ____________________ the equilibrium price.

less than