Exam 4: Supply and Demand An Initial Look

One effect of market intervention is resource misallocation.

Figure 4-1 -If the government has stated that it will pay whatever it must to obtain 1,000 units of good X,which demand curve in Figure 4-1 is appropriate?

The most basic investigative tool of economics is the

An increase in consumer income will shift both the supply and demand curves.

The supply curve of books (which are produced using paper made from trees)will shift to the left in response to

Refer to Exhibit 4-1.According to the data given,when the market is in Equilibrium,how many weezils are sold?

A change in the price of important inputs will change the quantity supplied but will not shift the supply curve.

Suppose that in a free market 2,000 patients purchase an operation to receive an artificial heart at a price of $500,000 per operation.Without the heart,each patient will die.The government decides this price is too high and imposes a maximum price of $200,000.Everything else equal,

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

Last year,1,000 cases of cough syrup were sold at $10; this year,1,200 cases were sold at $12.The most probable interpretation of these data is that the

The price for labor is the wage rate.What happens to the demand for labor if wages increase?

When price is above the equilibrium level,competitive price cutting will continue as long as quantity supplied exceeds quantity demanded.

Rent controls and controls on other prices often aggravate the very problem they are intended to solve.

Which of the following will tend to occur if price floors are imposed on a product?

At an equilibrium price,quantity demanded

Figure 4-21 -At price P₃ in Figure 4-21,what will tend to happen?

Figure 4-25 As a result of contaminated public water,consumers substituted bottled water,increasing the demand for bottled water (Figure 4-25).If the market is unfettered,equilibrium price and quantity will increase,assuming supply is unchanged.Holding price at pre-Andrew levels would cause a shortage,as quantity supplied would be unchanged from pre-Andrew levels while demand increased.Unintended side effects would include long lines for bottled water and black markets where bottled water would be sold for far more than the legislated price. -The following are common errors students make when discussing supply and demand.What is the mistake in each? a. At equilibrium,demand equals supply. b. The quantity of demand is greater than the quantity of supply. c. They move along the line from both ends to an equilibrium in the middle. d. The increase in demand causes an increase in supply.

Figure 4-5 -If the suppliers of a good will sell any amount at $30 but there are no sales,then the market can best be represented by which graph in Figure 4-5?

During the American Revolution,Washington's army nearly starved to death after price controls were enacted to "help" buy food for the army at affordable prices.The Continental Congress later passed a law which

The demand for computers has risen dramatically at the same time that the unit cost of production has decreased.As a result,we can expect