Intellipath Unit 2 - Market Equilibrium
The current price on mufflers is higher than the market equilibrium point. You are called into a meeting with the CEO of AutoEdge. What should be your advice? "I recommend keeping prices higher than the market since suppliers want high prices." "I recommend increasing inventories to ensure consumer demand is met as we relocate back to the U.S." "I recommend adding a larger production facility in Mexico to take advantage of the high prices." "I recommend waiting to make changes since the economy will enter a recession soon."
"I recommend increasing inventories to ensure consumer demand is met as we relocate back to the U.S."
The current price on mufflers is higher than the market equilibrium point. You are called into a meeting with the CEO of AutoEdge. What should be your advice? "I recommend adding a larger production facility in Mexico to take advantage of the high prices." "I recommend waiting to make changes since the economy will enter a recession soon." "I recommend keeping prices higher than the market since suppliers want high prices." "I recommend speaking with the human resources manager about implementing a hiring freeze."
"I recommend speaking with the human resources manager about implementing a hiring freeze."
The current price on mufflers is higher than the market equilibrium point. You are called into a meeting with the CEO of AutoEdge. What should be your advice? "I recommend adding a larger production facility in Mexico to take advantage of the high prices." "I recommend that AutoEdge invest in building space to house inventory and keep supplying at this higher price." "I recommend waiting to make changes since the economy will enter a recession soon." "I recommend that AutoEdge slow production and consider alternative uses for fixed assets."
"I recommend that AutoEdge slow production and consider alternative uses for fixed assets."
Why would AutoEdge consider merging with one of its competitors? AutoEdge is attempting to limit supply and keep prices high since barriers to entry are low A binding price ceiling has been imposed on all auto parts sold inside the U.S. AutoEdge is the only firm that can offer economic profit to other companies AutoEdge needs to replicate its competitor's differentiation strategy in an effort to raise prices
A binding price ceiling has been imposed on all auto parts sold inside the U.S.
AutoEdge hires a new economic analyst who decides to compute the profit margin for each product line. What might cause the analyst to tell the CEO to stop investing in further production of a certain auto part? Consumers are currently engaging in a strong bidding war The analyst underallocated fixed costs to the auto part A binding price ceiling has been in effect for many years Consumers and suppliers are fine with high prices
A binding price ceiling has been in effect for many years
Which of the following situations would support consumer demand the most? Market disequilibrium that encourages supplier overproduction A price floor on consumer income A merger among firms helping to create one dominant firm An undersupply since that only occurs when prices are low
A price floor on consumer income
Which of the following situations would support consumer demand the most? A binding price ceiling on wages An undersupply since that only occurs when prices are low A price point below market equilibrium Firms have built up unwanted levels of inventory
A price point below market equilibrium
What condition would exist at market equilibrium? All firms would slow production if prices fell All firms are selling their available products All consumers are satisfied that their demand is met All firms are engaging in implicit collusion
All firms are selling their available products
A business manager finds that the majority of expenses each month are completely uncorrelated with revenue levels. How might the nature of these expenses influence the market equilibrium point? The market equilibrium point will be higher as firms seek to increase marginal revenue Consumers will not be satisfied at high price points The building and equipment should be replaced with items that correlate with revenue An efficient firm will be willing to supply more at lower price points
An efficient firm will be willing to supply more at lower price points
A business manager finds that the majority of expenses each month are completely uncorrelated with revenue levels. How might the nature of these expenses influence the market equilibrium point? The building and equipment should be replaced with items that correlate with revenue An inaccurate allocation rate could cause firms to undersupply at a price point Consumers will not be satisfied at high price points An efficient firm can easily cut costs to raise profit levels, leading to more supply
An inaccurate allocation rate could cause firms to undersupply at a price point
What type of market structure is best for understanding supply and demand forces? An industry with strong demand creating inelastic consumption An industry where most products are sold through a public exchange An industry with a few competitors but one dominant firm An industry where only one firm has the legal right to offer products
An industry where most products are sold through a public exchange
Why would AutoEdge consider merging with one of its competitors? AutoEdge can only find production space in commercial buildings with rent ceilings Auto parts have become more homogenous because of regulations AutoEdge has been experiencing long-term economic profits AutoEdge is trying to avoid import tariffs on what it produces in South Korea
Auto parts have become more homogenous because of regulations
South Korea has voted to raise the minimum wage in three months. How might that impact the amount that AutoEdge is willing to supply the marketplace? AutoEdge will stop producing additional items since purely competitive firms operate where MR = MC AutoEdge might need to relocate to China to keep supply and price levels the same AutoEdge will supply less because higher costs mean lower profit AutoEdge will exit the marketplace since supply and demand involve a pure competition environment
AutoEdge might need to relocate to China to keep supply and price levels the same
South Korea has voted to raise the minimum wage in three months. How might that impact the amount that AutoEdge is willing to supply the marketplace? AutoEdge will stop producing additional items since purely competitive firms operate where MR = MC AutoEdge will supply less because higher costs mean lower profit AutoEdge will raise prices since its customers will have more money to spend AutoEdge may not change its willingness to supply the marketplace
AutoEdge will raise prices since its customers will have more money to spend
What market force would bring an above-average price back into equilibrium? One firm exists in a monopoly and has the power to supply all consumers A strong differentiation strategy is implemented Firms do not want to house surplus inventory Consumers know that a high price means higher quality
Firms do not want to house surplus inventory
What market force would bring a below-average price back into equilibrium? A nonbinding price floor on the product's price Consumers have various close substitutes to choose among Consumers competing with one another for a limited amount of goods Consumers are dissatisfied with the current price point
Consumers competing with one another for a limited amount of goods
What market force would bring a below-average price back into equilibrium? A nonbinding price floor on the product's price Consumers have various close substitutes to choose among Consumers competing with one another for a limited amount of goods Firms outbid each other through a price war
Consumers competing with one another for a limited amount of goods
AutoEdge is considering the addition of a second production facility in Mexico to make windshields. What could help drive their decision? AutoEdge is attempting a cost leadership strategy, which requires new costs to become the industry leader The company's marginal costs equal marginal revenue The U.S. government has set a price ceiling on windshields Economic profit exists in the auto parts sector
Economic profit exists in the auto parts sector
AutoEdge has decided to return production to the United States. What issue might hamper profits if it tries to compete on an international scale? Free trade agreements have caused import tariffs to skyrocket High minimum wage rate in the U.S. Foreign investors are directing too much capital into the United States Price floors imposed on U.S. auto manufacturers selling cars abroad
High minimum wage rate in the U.S.
Under what circumstance would a monopoly firm stop supplying more products into the marketplace? A reduction of supply will keep the price low A monopoly firm will only supply the market when prices are higher than the equilibrium point A binding price floor on the product has been set Marginal costs are equal to marginal revenue for the product
Marginal costs are equal to marginal revenue for the product
A business manager finds that the majority of expenses each month are completely uncorrelated with revenue levels. How might the nature of these expenses influence the market equilibrium point? Consumers will not be satisfied at high price points Marginal costs can quickly equal marginal revenue if inefficiency exists The market equilibrium point will be higher as firms seek to increase marginal revenue The building and equipment should be replaced with items that correlate with revenue
Marginal costs can quickly equal marginal revenue if inefficiency exists
AutoEdge hires a new economic analyst who decides to compute the profit margin for each product line. What might cause the analyst to tell the CEO to stop investing in further production of a certain auto part? Consumers and suppliers are fine with high prices AutoEdge faces a new market entrant despite low economic profit The analyst underallocated fixed costs to the auto part Marginal costs exceed marginal revenue for the auto part
Marginal costs exceed marginal revenue for the auto part
Research you conducted shows that car door locks are selling below the current market equilibrium point. You are asked to share your thoughts on a conference call with the board of directors. What should you mention to the board? Consumers will not be satisfied if we raise prices, leading to high inventory if prices increase AutoEdge should be content at these low price points since MR = MC Increasing production volume can help remove market inefficiency that is keeping prices low Marginal revenue should increase as disequilibrium is removed for the marketplace
Marginal revenue should increase as disequilibrium is removed for the marketplace
What market force would bring an above-average price back into equilibrium? One firm exists in a monopoly and has the power to supply all consumers A strong differentiation strategy is implemented Most consumers cannot afford the price point Firms will start to produce more because they desire high prices
Most consumers cannot afford the price point
The government imposed a price floor for auto parts because of how the recent recession shocked the auto industry. How would AutoEdge benefit from a price floor? New technology has resulted in a flood of new substitutes AutoEdge recently spent money to initiate a new differentiation strategy Consumer demand reacts to the price floor according to normal market forces The price floor sits below the equilibrium market rate
New technology has resulted in a flood of new substitutes
Why would AutoEdge consider merging with one of its competitors? AutoEdge can only find production space in commercial buildings with rent ceilings Normal profits have been eroded after a free trade agreement brought more imports into the marketplace AutoEdge is trying to avoid import tariffs on what it produces in South Korea AutoEdge has been experiencing long-term economic profits
Normal profits have been eroded after a free trade agreement brought more imports into the marketplace
What market force would bring a below-average price back into equilibrium? A nonbinding price floor on the product's price Consumers are dissatisfied with the current price point Consumers have various close substitutes to choose among Perfect information about how much buyers are willing to spend
Perfect information about how much buyers are willing to spend
Why would a price floor help a local farmer selling corn on the open market? The market price sits above the price floor Profit margins are below the normal range Consumer demand was too high and the farmer could not keep up with production A nonbinding price floor was imposed on farmers the year before
Profit margins are below the normal range
The United States recently signed a free trade agreement with South Korea. Which of the following explains how a bound ceiling on tariffs could benefit AutoEdge? South Korea raises its tariffs on imported auto parts creating a tariff battle Corporate tax rates are increased because tariff revenue has declined South Korea charges AutoEdge increasingly more rent on its facility The South Korean facility begins to sell auto parts to one of AutoEdge's customers separately after AutoEdge returns production to the United States
South Korea raises its tariffs on imported auto parts creating a tariff battle
How might a price ceiling impact customer demand? The price ceiling will put a block on customer demand Customers will switch to substitute products Substitute products will become less desirable Customer elasticity of demand will change
Substitute products will become less desirable
Under what circumstance would a price ceiling impact customers? The price ceiling will remain nonbinding long term The price ceiling does not alter the elasticity of demand Suppliers have an overabundance of production Suppliers decide to produce less
Suppliers decide to produce less
AutoEdge hires a new economic analyst who decides to compute the profit margin for each product line. What might cause the analyst to tell the CEO to stop investing in further production of a certain auto part? The current price on the auto part is above the equilibrium point The analyst underallocated fixed costs to the auto part Consumers are currently engaging in a strong bidding war Consumers and suppliers are fine with high prices
The current price on the auto part is above the equilibrium point
AutoEdge is considering the addition of a second production facility in Mexico to make windshields. What could help drive their decision? The company's marginal costs equal marginal revenue The current price on windshields is below the equilibrium point The U.S. government has set a price ceiling on windshields AutoEdge is attempting a cost leadership strategy, which requires new costs to become the industry leader
The current price on windshields is below the equilibrium point
Under what circumstance would a monopoly firm stop supplying more products into the marketplace? A reduction of supply will keep the price low A monopoly firm will only supply the market when prices are higher than the equilibrium point The firm would like to create a supply shortage A binding price floor on the product has been set
The firm would like to create a supply shortage
Under what circumstance would a monopoly firm stop supplying more products into the marketplace? A reduction of supply will keep the price low The firm would like to drive the price higher A binding price floor on the product has been set Consumers wish to maintain the low price caused by the low quantity supplied I don't know
The firm would like to drive the price higher
Under what circumstance would a monopoly firm stop supplying more products into the marketplace? The firm would like to drive the price higher Consumers wish to maintain the low price caused by the low quantity supplied A monopoly firm will only supply the market when prices are higher than the equilibrium point A binding price floor on the product has been set
The firm would like to drive the price higher
Research you conducted shows that car door locks are selling below the current market equilibrium point. You are asked to share your thoughts on a conference call with the board of directors. What should you mention to the board? The low prices indicate that automobile manufacturers are facing a short supply of car door locks Consumers will not be satisfied if we raise prices, leading to high inventory if prices increase Prices are low because AutoEdge and its competitors keep supply high at these low price points Increasing production volume can help remove market inefficiency that is keeping prices low
The low prices indicate that automobile manufacturers are facing a short supply of car door locks
Why would a price floor help a local farmer selling corn on the open market?
U.S. corn subsidies caused farmers to flood the market
All of the managers are holding a meeting and everyone is debating how much pizza to order. You have strong technical skills in economics and you decide to configure the proper amount to order. You must consider that pizza companies will gladly supply 10 pizzas for the whole group You must take into account that pizza companies do not ever hold pizza inventory You must ensure that the quantity demanded of pizza remains below the quantity that will be supplied You must consider that excess pizza consumption will lead to higher healthcare costs for the company
You must consider that excess pizza consumption will lead to higher healthcare costs for the company
With price ceiling, you might experience ___________________
excess demand
