LC4 Equilibrium: How Supply Demand Determine Prices

What would happen if the supply of oil decreased?

The market price would rise.

What happened to oil prices from the early twentieth century to the 1970s?

There were modest declines in oil price.

Lower production costs result in:

a lower equilibrium price. Lower production costs shift the supply curve down and to the right.

What were OPEC countries able to work together to achieve by the early 1970s?

a reduced oil supply and higher oil prices

Refer to the nearby diagram, which shows the market for good C. Which of the prices shown on the diagram would lead to a surplus?

$21 or $30

A movement along a fixed supply curve caused by a rightward shift in the demand curve is best described as a(n):

increase in quantity supplied.

A decrease in supply along a fixed demand curve:

increases the equilibrium price and reduces the equilibrium quantity.

If the demand for oil decreased:

market price would fall.

Assume that the market for chocolate pictured nearby is in equilibrium. Who is represented by the portion of the curve labeled B?

sellers

An increase in supply is a:

shift the supply curve to the right

Fred participates in a supply and demand experiment in his managerial economics course. What can he expect the laboratory experiment to reveal about the supply and demand model?

It successfully predicts real-life behavior.

If peanuts become cheaper to produce because of new production technology, what will happen to the equilibrium price and equilibrium quantity?

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

Assume that the market for chocolate pictured nearby is in equilibrium. What portion of a curve represents the consumers who value chocolate the least?

D

Suppose that when good J is free, buyers will demand 100 units of it, but the quantity demanded falls by 5 units for every $2 increase in the price. If the quantity supplied is fixed at 60 units, the equilibrium price will be:

$16. At $16, the quantity demanded would be 100 − (5 × ($16 ÷ $2)) = 60, which is equal to the quantity supplied. Therefore, the market is in equilibrium.

The industrial revolution underway in China and India has induced millions of people to buy automobiles for the first time. This will drive oil prices:

up, because of an increase in demand.

Assume that the market for chocolate pictured nearby is in equilibrium. What portion of a curve represents the producers with the lowest costs?

B

A new farming technology decreases the cost of producing peanuts, which causes the price of peanut butter to decrease. What happens to the equilibrium price and equilibrium quantity of jelly?

Both the equilibrium price and equilibrium quantity increase.

A recent study in a popular health journal cited the great metabolic benefits of orange juice. Readers of the journal were encouraged to drink at least two glasses of juice per day. As a result, people flocked to the grocery stores to buy orange juice. How did the published study likely affect the equilibrium price and equilibrium quantity of orange juice?

Both the equilibrium price and equilibrium quantity would have increased.

Consider the nearby diagram, which shows the market for chocolate? If, in this market, demand is represented by curve D2, supply is represented by curve S1, and the price is P2:

There will be a surplus in this market

Refer to the nearby diagram, which shows the market for milk, along with two demand curves and two supply curves. Which BEST describes the movement from an equilibrium at point K to a new equilibrium at point M?

an increase in demand and a decrease in supply. The supply curve shifts to the left, and the demand curve shifts to the right.

An increase in supply will _____ the equilibrium price and _____ the equilibrium quantity.

reduce; increase