Economics 202 Chapter 5 Market Equilibrium

Which of the following is the correct way to describe equilibrium in a market?

At equilibrium, quantity demanded equals quantity supplied.

A surplus occurs when the actual selling price is above the market equilibrium price.

True

Refer to Figure 3-5. At a price of $10, the quantity sold

is 4 units

Refer to Figure 3-5. In a free market such as that depicted above, a surplus is eliminated by

a price decrease, decreasing the quantity supplied and increasing the quantity demanded.

Which of the following would cause both the equilibrium price and equilibrium quantity of cotton (assume that cotton is a normal good) to increase?

an increase in consumer income

An increase in the demand for lobster due to changes in consumer tastes, accompanied by a decrease in the supply of lobster as a result bad weather reducing the number of fishermen trapping lobster, will result in

an increase in the equilibrium price of lobster; the equilibrium quantity may increase or decrease.

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

false

Market equilibrium occurs where supply equals demand.

false

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

false

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit

the supply curve shifted to the left resulting in an increase in the equilibrium price.

Refer to Figure 3-4. At a price of $10, how many units will be sold?

200

Let D= demand, S = supply, P = equilibrium price, Q= equilibrium quantity. What happens in the market for walnuts if the Centers for Disease Control and Prevention announces that consuming a half cup of walnuts each week helps to lower bad levels of cholesterol?

D increases, S no change, P and Q increase

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

The demand for Lincoln letters increases and the supply of Booth letters increases.

Refer to Figure 3-4. If the price is $15,

there would be a shortage of 300 units.

Refer to Figure 3-4. If the price is $10,

there would be a shortage of 600 units.

Refer to Figure 3-5. At a price of $15

there would be a surplus of 4 units.

A shortage occurs when the market price is lower than the equilibrium price.

true

In 2004, hurricanes damaged a large portion of Florida's orange crop. As a result of this, many orange growers were not able to supply fruit to the market. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

A shortage of oranges

In recent years the cost of producing organic produce in the U.S. has decreased largely due technological advancement. At the same time, more and more Americans prefer organic produce over conventional produce. Which of the following best explains the effect of these events in the organic produce market?

Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.

Which of the following is evidence of a shortage of walnuts?

The quantity demanded of walnuts is greater than the quantity supplied.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.

A decrease in the demand for soft drinks due to changes in consumer tastes, accompanied by an increase in the supply of soft drinks as a result of reductions in input prices, will result in

a decrease in the equilibrium price of soft drinks; the equilibrium quantity may increase or decrease.

Which of the following would cause the equilibrium price of white bread to decrease and the equilibrium quantity of white bread to increase?

a decrease in the price of flour

Orange juice drinkers want to consume more orange juice at a lower price. Which of the following events would have this effect?

a decrease in the price of orange juice processing

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries.

In a perfectly competitive market, there are ________ buyers and ________ sellers.

many; many

Olive oil producers want to sell more olive oil at a higher price. Which of the following events would have this effect?

research finds that consumption of olive oil reduces the risk of heart disease

A surplus occurs when the actual selling price is above the market equilibrium price.

true

In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplies will decrease until equilibrium is reached.

true