Section 2: Supply and Demand (Assignment 2)

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall

If the demand for a good decreases as income decreases, then the good is a(n):

normal good.

Refer to the figure below. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will:

shift to S(A).

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the total economic surplus from this transaction was:

$30

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______.

$35; 20

What might cause a demand curve to shift to the right?

An increase in the price of a substitute.

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

Joe and Mary can make a mutually beneficial exchange.

Refer to the figure below. If the government imposed a price ceiling of $40, what would happen in this market?

The price ceiling would have no effect.

Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

They would lower their prices because at $45 there would be excess supply.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by:

a fall in consumer income assuming corn is a normal good.

The price of bananas will increase in response to:

an excess demand for bananas.

Refer to the figure below. At a price of $9, there will be:

an excess supply of 5 units.

It is likely that for most people:

coffee and tea are substitutes.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

excess demand will lead the price of oranges to rise

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium:

excess supply will lead the price to fall.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

greater than $4.50 but no more than $5.00.

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

The entire group of buyers and sellers of a particular good or service makes up:

the market.

When a market is in equilibrium:

there is neither excess demand nor excess supply.