Econ 2306 Lesson 4

What are the three questions to help do supply and demand problems?

1. What is the market? 2. Who does this impact? (buyers or sellers) 3. How does this impact? (more or less)

An effective price ceiling usually generates Answers: A. the use of nonprice rationing devices. B. happy sellers and dissatisfied buyers. C. fire sales as firms try to unload their excess inventories. D. higher nominal prices.

A

If demand and supply both decrease Selected Answer: Answers: A the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information. B the market clearing price definitely will decrease, but the change in the equilibrium quantity cannot be determined without more information. C the equilibrium quantity definitely will decrease, and the market clearing price definitely will decrease. D the equilibrium quantity definitely will decrease, and the market clearing price definitely will increase.

A

If the demand for a product rises and the supply stays the same Selected Answer: Answers: A both the market clearing price and the equilibrium quantity will rise. B the market clearing price will fall and the equilibrium quantity will rise. C the market clearing price will rise and the equilibrium quantity will fall. D both the market clearing price and the equilibrium quantity will fall.

A

In the market for domestic avocados, what would happen to the market clearing price and the equilibrium quantity if there was a drought in avocado growing areas? A The market clearing price would rise, and the equilibrium quantity would fall. B The market clearing price would rise, and the equilibrium quantity would rise. C The market clearing price would fall, and the equilibrium quantity would fall. D The market clearing price would fall, and the equilibrium quantity would rise.

A

Instituting a rent control program will most likely lead to Answers: A a shortage of rental units. B overly elaborate and expensive construction. C an excess quantity supplied of rental units. D an efficient allocation of existing units among consumers.

A

Other things being equal, suppose that the demand for wheat in constant quality units increases. The increase in demand will cause Answers: A. a higher equilibrium price and higher equilibrium quantity of wheat. B. fall in the market clearing price of corn, a substitute for wheat. C. a higher equilibrium quantity, but a lower equilibrium price of wheat. D. a surplus of wheat.

A

Price floors Answers: A. create surpluses by setting the price above equilibrium. B. create shortages by setting the price above equilibrium. C. are used by advocates of the free market. D. provide free market incentives for producers

A

Suppose Brad Pitt and Angelina Jolie wear matching platinum jewelry in their new movie. After the movie is released, suppose that consumers increase their demand for the jewelry and at the same time manufacturers increase the supply of the jewelry. As a result Answers: A the equilibrium quantity will increase, and there is an indeterminate change in the equilibrium price. B the equilibrium quantity will decrease, and the equilibrium price will increase. C the equilibrium quantity and price are both indeterminate. the equilibrium price and quantity will both decrease.

A

Suppose that demand for tablets increases, and simultaneously, the supply of tablets increases. Which of the following would you conclude definitely will occur in the market for tablets? Answers: A The equilibrium quantity will rise. B The equilibrium quantity will fall. C The market clearing price will fall. D The market clearing price will rise.

A

Suppose the price of lumber decreases. In the market for new homes, we would expect which of the following to occur? Answers: A the market clearing price will fall and the equilibrium quantity will rise. B the market clearing price will rise and the equilibrium quantity will fall. C both the market clearing price and the equilibrium quantity will fall. D both the market clearing price and the equilibrium quantity will rise.

A

An increase in supply causes Answers: A quantity supplied to decrease. B price to decrease. C price to increase. D supply and price to increase.

B

An increase in supply, other things being equal, will cause which of the following to occur? Answers: A. a rightward shift in the demand curve as the price falls. B. quantity demanded to increase. C. a leftward shift in the demand curves as the price increases. D. quantity supplied to decrease.

B

Chocolate has just been found to increase your expected life span by 5 years if you eat it every day. In the market for chocolate, this information will lead to Answers: A an increase in price and a decrease in quantity. B an increase in price and an increase in quantity. C a decrease in price and a decrease in quantity. D a decrease in price and an increase in quantity.

B

If demand increases and supply decreases Selected Answer: Answers: A the equilibrium quantity definitely will decrease, but the change in the market clearing price cannot be determined without more information. B the market clearing price definitely will increase, but the change in the equilibrium quantity cannot be determined without more information. C the market clearing price definitely will increase, and the equilibrium quantity definitely will increase. D the market clearing price definitely will increase, and the equilibrium quantity definitely will decrease.

B

Price controls Answers: A are another name for the price system. B interfere with the rationing function of prices. C do not include black markets. D do not include rent controls.

B

Suppose the price of crude oil used to produce gasoline rises significantly. At the same time, consumers purchase hybrid cars in great numbers. In the market for gasoline, the market clearing price ________ and the equilibrium quantity ________. Answers: A definitely falls, definitely rises B is indeterminate, definitely falls C definitely falls, is indeterminate D definitely rises, is indeterminate

B

Suppose you observe that the price of a good increases and that the quantity of this good sold also increases. If only the demand curve or the supply curve shifts this suggests that Answers: A supply increased over time while demand remained the same. B demand increased over time while supply remained the same. C supply decreased over time while demand remained the same. D demand decreased over time while supply remained the same.

B

When supply increases and at the same time demand decreases, we Answers: A can predict that both equilibrium price and quantity will decrease. B cannot predict equilibrium quantity, but know that equilibrium price will decrease. C cannot predict the change in either the equilibrium quantity or equilibrium price. D can predict that both equilibrium price and quantity will increase.

B

Goods X and Y are complementary goods. An increase in the price of good X has occurred. In the market for good Y this will lead to Answers: A an increase in price and a decrease in quantity. B an increase in price and an increase in quantity. C a decrease in price and a decrease in quantity. D a decrease in price and an increase in quantity.

C

Holding supply constant, a reduction in demand leads to Answers: A. higher prices and lower quantity supplied. B. lower prices and higher quantity supplied. C. lower prices and lower quantity supplied. D. higher prices and higher quantity supplied.

C

If other factors remain unchanged, technological progress in producing good X definitely will lead to Answers: A. a decrease in both the market clearing price and the equilibrium quantity of good X. B. an increase in both the market clearing price and the equilibrium quantity of good X. C. a decrease in the market clearing price of good X and an increase in the equilibrium quantity of good X. D. an increase in the market clearing price of good X and a decrease in the equilibrium quantity of good X.

C

If the demand for a product falls and the supply stays the same Answers: A both the market clearing price and the equilibrium quantity will rise. B the market clearing price will rise and the equilibrium quantity will fall. C both the market clearing price and the equilibrium quantity will fall. D the market clearing price will fall and the equilibrium quantity will rise

C

If the demand for a product remains the same and the supply falls, Answers: A both the market clearing price and the equilibrium quantity will fall. B the market clearing price will fall and the equilibrium quantity will rise. C the market clearing price will rise and the equilibrium quantity will fall. D both the market clearing price and the equilibrium quantity will rise.

C

In which of the following situations will market clearing price increase and the equilibrium quantity decrease? Answers: A. an increase in demand with no change in supply B. an increase in supply with no change in demand C. a decrease in supply with no change in demand D. a decrease in demand with no change in supply

C

Price controls often generate Answers: A. greater price flexibility. B. rapid adjustment to market-clearing prices. C. black markets. D. more efficient markets.

C

Rent controls are an example of a Answers: A price floor. B price floor for the consumer and a price ceiling for the producer. C price ceiling. D nonprice rationing device.

C

Rent controls are an example of a Selected Answer: A price floor for the consumer and a price ceiling for the producer. B nonprice rationing device. C price ceiling. D price floor.

C

Rent controls often have adverse effects, including Answers: A too much housing in a community. B too much construction of new rental units in the community. C deterioration in the quality of existing rental units. D income transfers from the poor to landlords.

C

The economy is undergoing a recession that has reduced consumers' incomes. In the computer chip market, this will lead to Answers: A an increase in price and a decrease in quantity. B an increase in price and an increase in quantity. C a decrease in price and a decrease in quantity. D a decrease in price and an increase in quantity.

C

When supply and demand for a product increase simultaneously, we Answers: A. Can predict that both the market clearing price and the equilibrium quantity will decrease. B Can predict that both the market clearing price and the equilibrium quantity will increase. C. Cannot predict the market clearing price, but know that the equilibrium quantity will increase. D. Cannot predict the change in either the equilibrium quantity or the market clearing price

C

Which of the following is NOT a predictable result of a price ceiling set below the market clearing price? Answers: A lines to purchase the product B an illegal market in the good C excess quantity supplied D excess quantity demanded

C

a price ceiling is set above the current market clearing price, then Answers: A. a surplus must immediately occur. B. there will be incentives for black markets to develop. C quantity demanded will remain equal to quantity supplied at the current market clearing price. D a shortage must immediately occur.

C

A technological advancement has just occurred in the computer chip industry. In the computer chip market this will lead to Answers: A an increase in price and a decrease in quantity. B an increase in price and an increase in quantity. C a decrease in price and a decrease in quantity. D a decrease in price and an increase in quantity.

D

Holding demand constant, a reduction in supply leads to Answers: A lower prices and higher quantity demanded. B higher prices and higher quantity demanded. C lower prices and lower quantity demanded. D higher prices and lower quantity demanded.

D

If both buyers and sellers expect the price of a commodity to rise in the future, it is likely that the market clearing price ________ and the equilibrium quantity ________. Answers: A. cannot be predicted, will rise B. will fall, cannot be predicted C. cannot be predicted, will fall D. will rise, cannot be predicted

D

If demand increases while supply decreases, then the equilibrium price Answers: A. never changes. B. may increase, decrease, or stay the same. C. always decreases. D. always increases.

D

If price increases and the quantity purchased increases, we know that Answers: A demand decreased. B supply increased. C supply decreased. D demand increased.

D

To enhance their prestige, some country clubs like to point to the fact that they have a waiting list for new members. Even at clubs with high initiation fees, it is common that prospective members have to wait three or more years before there is room for them on the membership rolls. How do these country clubs set the price of membership to ensure that they have a waiting list? Answers: A Set the membership price above the market clearing price. B Set the price so that the quantity supplied of memberships exceeds the quantity demanded. C Set the price at a level that will generate a surplus of memberships. D Set the membership price below the market clearing price.

D

We cannot predict the effect on the equilibrium quantity, but know that the market clearing price will increase when Answers: A. supply and demand increases simultaneously. B. supply increases and demand increases simultaneously. C. supply and demand decreases simultaneously. D. supply decreases and at the same time demand increases

D

Which of the following must occur as a result of ceilings on apartment rents that are set below market clearing rental rates? Answers: A. Property owners respond to the ceilings by increasing maintenance and repairs. B. Property owners respond to the ceilings by constructing new apartment buildings. C. There is a decrease in the quantity of apartments that prospective tenants wish to rent. D There is a decrease in the quantity of apartments that property owners offer for rent.

D

A government set maximum price that is below the market equilibrium price?

Effective Price Ceiling

A government set minimum price that is above the market equilibrium price?

Effective price floor

When price goes up quantity demanded goes?

down

When price goes up quantity supplied goes?

up

The income of consumers increases and the wage rate in the DVD industry increases. As a result: Answers: A the price of DVDs increases and the quantity sold can either increase, decrease or stay the same depending on whether the change in demand was greater than the change in supply. B the price of DVDs stays the same and the quantity sold can either increase or decrease, depending on whether the change in demand is greater than the change in supply. C the equilibrium quantity sold can either increase or decrease and the price can either increase or decrease, depending on whether the change in demand was greater than the change in supply. D the equilibrium quantity sold increases and price can either increase or decrease, depending on whether the change in demand is greater than the change in supply.

A

When supply and demand for a product decrease simultaneously, we Answers: A cannot predict equilibrium price, but know that equilibrium quantity will decrease. B can predict that both equilibrium price and quantity will increase. C cannot predict the change in either the equilibrium quantity or equilibrium price. D can predict that both equilibrium price and quantity will decrease.

A

With respect to the market clearing price and the equilibrium quantity for good X, an increase in the demand for and a decrease in supply of the good definitely will Answers: A increase the market clearing price of good X but have an uncertain impact on the equilibrium quantity of X. B. decrease the market clearing price and the equilibrium quantity of good X. C. increase the market clearing price and the equilibrium quantity of good X. D. increase the market clearing price of good X but lower the equilibrium quantity of X

A

A government set minimum price?

Price Floor

A government set maximum price?

Price ceiling