Microeconomics Chp. 4

Equilibrium occurs when:

the quantity demanded equals the quantity supplied.

From the early twentieth century to the 1970s, the supply of oil outpaced demand, and:

there were modest declines in oil prices.

An undergraduate student 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.

How would a global fall in income affect oil prices?

Oil prices would fall as the demand for oil dropped.

What would happen if the demand for oil increased?

Quantity supplied would increase.

The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. Which is the best analysis of this situation?

This surplus of houses led to decreases in housing prices.

Which economist began testing the supply and demand model by running experiments with his undergraduate students in 1956?

Vernon Smith

A decrease in supply along a fixed demand curve results in:

a higher equilibrium price.

If the demand for oil increased, the:

demand curve would shift to the right.

A shortage occurs when the quantity:

demanded is greater than the quantity supplied.

True of False: "Government subsidies of an industry will not affect the total gains from trade achieved by the free market."

false, because subsidized industries are likely to be characterized by wasted resources.

A _____ maximizes the total of producer surplus and consumer surplus.

free market

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.

Holding supply constant, if the demand curve shifts to the right, there will be a(n) _____ in the equilibrium price and a(n) _____ in the equilibrium quantity.

increase; increase

An increase in demand _____ the equilibrium price and _____ the equilibrium quantity.

increases; increases

A free market _____ the gains from trade.

maximizes

Unexploited gains from trade exist at:

quantities below the equilibrium quantity.

If the supply of oil decreased:

the market price would rise.

When the free market maximizes the total gains from trade, there may be:

unsatisfied wants.

Lower production costs result in:

a lower equilibrium price.