Deck 4: Markets in Action

Question 1

With a given supply curve, a decrease in demand causes:

A) a decrease in price but an increase in equilibrium quantity.
B) an increase in price but a decrease in equilibrium quantity.
C) a decrease in equilibrium price and quantity.
D) a reduction in equilibrium quantity with no effect on price.

Answer 1

a decrease in equilibrium price and quantity.

Question 2

If the supply of a normal good remains unchanged but the income level of the consumer increases:

A) the quantity demanded of the good falls.
B) the supply curve for the good shifts to the left.
C) the price of the good reduces.
D) the equilibrium quantity of the good increases.

Answer 2

the equilibrium quantity of the good increases.

Question 3

Suppose butter and margarine are used as substitutes. Assuming that the supply of butter is constant, an increase in the price of margarine will:

A) decrease the equilibrium quantity of butter.
B) increase the equilibrium price of butter.
C) shift the demand curve for butter to the left.
D) shift the demand curve for margarine to the right.

Answer 3

increase the equilibrium price of butter.

Question 4

Suppose the market for wheat is in equilibrium. Which of the following is most likely to be true at the equilibrium price?

A) The demand curve for wheat will intersect the supply curve of wheat at a minimum of two points.
B) Sellers will not be willing to supply the quantity of wheat that buyers want to buy.
C) The quantity demanded of wheat will be equal to the quantity of wheat supplied.
D) No trades will take place in the market.

Question 5

Suppose bad weather adversely affects coffee plantations in Brazil. If the demand for coffee increases during such a shortage, which of the following is likely to be true?

A) Since the supply of coffee is elastic in the short-run, there won't be any change in the price of coffee.
B) The supply curve for coffee will shift to the right.
C) The demand for substitutes for coffee will fall.
D) The equilibrium quantity of coffee will decrease.

Question 6

If the prices of the factors of production used to produce biscuits increase, _____.

A) the supply of biscuits will decrease
B) the quantity demanded of biscuits will increase
C) the demand for biscuits will decrease
D) the quantity supplied of biscuits will increase

Question 7

Suppose that erasers and pencils are complements. When the price of erasers increases and the supply of pencils remains unchanged, _____.

A) the demand for pencils increases
B) the quantity supplied of erasers decreases
C) the equilibrium quantity of pencils decreases
D) the equilibrium price of pencils increases

Question 8

The following graph shows the demand (QD) and supply (QS) curves in the market for good X. Refer to the graph to answer the question: At a market price of £20, _____.

A) the quantity supplied in the market is equal to 200 units
B) the seller is willing to supply more than what the consumers are willing to buy
C) the seller will reduce the price until the excess stock is sold
D) there is a shortage of good X

Question 9

When a market is in equilibrium, _____.

A) the quantity supplied is equal to the quantity demanded
B) the number of sellers is equal to the number of buyers
C) buyers' willingness to demand is high
D) the seller faces high production costs

Question 10

A change in the demand for a normal good can result from a change in _____.

A) its price
B) the number of ?rms in the market
C) the cost of inputs
D) consumers' income

Question 11

Suppose there are two goods X and Y in the market that are used as substitutes. If consumers' preferences shift in favour of good Y:

A) the demand curve for good X shifts to the right.
B) the equilibrium quantity of good X increases if supply is unchanged
C) the equilibrium price of good X decreases if supply is unchanged.
D) the equilibrium price of good X increases if supply is increased.

Question 12

Excess demand exists in a market when:

A) the quantity supplied is greater than the quantity demanded.
B) demand for the good is falling.
C) the price in the market is below the equilibrium price.
D) market prices are very low.

Question 13

Which of the following statements is assumed to be true of a market?

A) In a market, the demand and supply curves intersect only at one point.
B) The quantity supplied in a market falls when the price of the good increases.
C) Since demand and supply curves intersect, a market will always be in equilibrium.
D) When the market price of the good falls, the demand curve shifts to the right.

Question 14

A change in the supply of a good can result from a change in _____.

A) technology
B) price
C) consumers' income
D) the tastes and preferences of the consumers

Question 15

Which of the following statements is true?

A) As price falls, the amount of a good producers are willing to put on the market for sale increases.
B) As prices rise, the amount of a good that consumers buy increases.
C) Since demand and supply curves intersect, the market will always be in equilibrium.
D) A position of disequilibrium in the market is corrected by market forces.

Question 16

With a given supply curve, if the demand curve shifts to the right, _____.

A) both the equilibrium price and quantity will increase
B) the equilibrium price will increase but the equilibrium quantity will decrease
C) the equilibrium price will decrease but the equilibrium quantity will increase
D) both the equilibrium price and quantity will decrease

Question 17

Which of the following statements is correct?

A) The quantity of goods bought in a market has to be equal to the quantity of goods sold.
B) For a market to be in equilibrium, the number of buyers needs to be equal to the number
C) At the equilibrium price, sellers bene?t more from trade than buyers.
D) The demand curve and supply curve intersect at all the different equilibrium points.

Question 18

When consumers' tastes and preferences for a product improve and the supply remains unchanged:

A) the quantity demanded of the product falls.
B) the supply curve becomes steeper.
C) the price of the product reduces.
D) the equilibrium quantity increases.

Question 19

At the equilibrium price, _____.

A) buyers have an incentive to leave the market
B) sellers have an incentive to leave the market
C) both buyers and sellers mutually bene?t from trade
D) sellers earn supernormal pro?ts

Question 20

If the consumer's income level increases leading to a decrease in the demand for bread, _____.

A) the demand curve for bread will shift to the right
B) the equilibrium quantity of bread will increase
C) the equilibrium price of bread will decrease
D) the supply curve for bread will shift to the left

Question 21

With demand remaining unchanged, which of the following is likely to happen if the supply curve shifts to the left?

A) The equilibrium price and quantity will rise.
B) The equilibrium price will rise and the equilibrium quantity will fall.
C) There will be no change in the equilibrium price or quantity.
D) The equilibrium price and quantity will fall.

Question 22

The quantity of corn supplied to the market will increase if:

A) the wages paid to agricultural labour falls.
B) the price of corn rises due to an increase in demand.
C) there is an improvement in the technology of corn production.
D) the price of wheat and other grains falls.

Question 23

With a given demand curve, an increase in supply will:

A) increase both the price of the good and the equilibrium quantity.
B) decrease the price of the good but will increase the equilibrium quantity.
C) decrease both the price of the good and the equilibrium quantity.
D) increase the price of the good but will decrease the equilibrium quantity.

Question 24

In the following graph, Q_S and Q_D represent the supply and demand curves respectively. Refer to the graph to answer the question.
If the market price is £10:

A) the consumers' willingness to pay is lower than the sellers' willingness to supply.
B) there is a shortage in the market.
C) sellers will discount the price until the excess supply is sold.
D) the market is in equilibrium.

Question 25

If a ?rm faces a relatively inelastic demand curve, an increase in supply is likely to _____.

A) lead to an increase in both output and price
B) lead to a fall in both output and price
C) lead to a decrease in total revenue
D) cause a more-than-proportionate increase in demand

Question 26

In a free market, a shortage of a good would cause the price in the market to:

A) fall and quantity supplied to rise.
B) rise and quantity demanded to rise.
C) fall and quantity demanded to rise.
D) rise and quantity demanded to fall.

Question 27

In the following graph, Q_S1 and Q_S2 represent the supply curves and Q_D1 and Q_D2 represent the demand curves. Refer to the graph to answer the question:
Which of the following statements is true?

A) The supply curve Q_S1 is elastic and Q_S2 is inelastic.
B) As price increases along the supply curve Q_S1, output will increase more than
C) An increase in demand will lead to a relatively larger change in output along Q_S2.
D) A decrease in demand from Q_D2 to Q_D1 leads to a rise in the equilibrium price.

Question 28

The supply curve for a good will shift to the right if:

A) some ?rms in the market close down and exit the market.
B) the costs of labour used in producing the good increase.
C) the costs of capital used in producing the good increase.
D) a cost-reducing technology is introduced in production.

Question 29

In which of the following cases is the elasticity of supply for a good likely to be high?

A) The ?xed cost of producing the good is very high.
B) The ?rm is operating with excess capacity.
C) The good has a large number of substitutes.
D) The market price of the good is very high.

Question 30

Formula 1 (F1) motor racing strictly controls the number of teams in the sport and the number of races in a season. It also controls television rights for the F1 season. It does this in order to _____.

A) increase price by restricting supply
B) reduce the quantity of motor racing demanded
C) make demand perfectly inelastic
D) create a surplus in the market

Question 31

Assuming that demand is unchanged, an increase in the number of competing ?rms in the market will _____.

A) lead to an increase in the equilibrium price
B) lead to an increase in the equilibrium quantity
C) shift the supply curve to the left
D) make the supply curve more elastic

Question 32

If the trade union in a factory that produces good X goes on an inde?nite strike, which of the following is likely to happen?

A) The supply curve for good X will shift to the right.
B) If demand remains unchanged, the equilibrium quantity of good X will increase.
C) If demand remains unchanged, the equilibrium price of good X will increase.
D) The demand curve for good X will shift to the right.

Question 33

The elasticity of supply is a measure of the responsiveness of quantity supplied to changes in:

A) the income level of buyers.
B) the price of the good.
C) the price of related goods.
D) the quantity demanded of the good.

Question 34

Suppose the demand for furniture remains constant. If there is a decrease in the cost of wood used to make furniture, _____.

A) the equilibrium price of furniture will increase while the equilibrium quantity will decrease
B) the equilibrium price of furniture will fall while the equilibrium quantity will increase
C) the equilibrium price and quantity of furniture will fall
D) the equilibrium price and quantity of furniture will increase

Question 35

In the following graph, Q_S1 and Q_S2 represent the supply curves and Q_D1 and Q_D2 represent the demand curves. Refer to the graph to answer the question:
Which of the following statements is true?

A) The demand curve Q_D1 is more elastic than the demand curve Q_D2.
B) The supply curve Q_S1 is less elastic than the supply curve Q_S2.
C) An increase in supply will lead to a relatively smaller change in output along Q_D1.
D) A decrease in supply from Q_S2 to Q_S1 will lead to a fall in the market price.

Question 36

Other things constant, the supply of wheat will increase if _____.

A) the resources used to produce wheat become less productive
B) the price of corn and other grains increases
C) the demand for wheat increases
D) the prices of the resources used to produce wheat fall

Question 37

If there is a surplus of a good in a free market, then it is expected that:

A) the supply curve will shift to the right.
B) the price in the market will fall.
C) the quantity supplied will increase.
D) the demand curve will shift to the left.

Question 38

The supply curve for a good will shift to the left if:

A) the price of a substitute good falls.
B) a new technology improves the ?rm's productivity.
C) new ?rms enter the market.
D) the cost of inputs increases.

Question 39

In the following graph, Q_S and Q_D represent the supply and the demand curves respectively. Refer to the graph to answer the question. If the market price is £30:

A) the market is in equilibrium.
B) consumers may begin to bid up the price in order to buy more of the product.
C) there is a surplus in the market.
D) no trades will occur in the market.

Question 40

Assuming that the demand for cars is constant, an increase in the cost of labour used in producing cars will lead to:

A) an increase in the equilibrium price but a decrease in the equilibrium quantity.
B) a decrease in the equilibrium price but an increase in the equilibrium quantity.
C) a decrease in both the equilibrium price and quantity.
D) an increase in both the equilibrium price and quantity.

Question 41

According to Gresham's Law, _____.

A) bad products drive out good products from the market
B) price discrimination leads to increased competition
C) it is more e?cient to have a pooling equilibrium than a separating equilibrium
D) the price and quantity supplied of goods are directly related

Question 42

If the government sets £1 as the price ceiling for a pound of sugar when the equilibrium price is £2.50, _____.

A) the number for goods used as a substitute for sugar will fall
B) sugar will have to be exported to other countries to reduce the surplus in the market
C) sellers may seek to sell sugar illegally at a price lower than the price ceiling
D) the quantity of sugar demanded will exceed the quantity supplied

Question 43

Data from the UK Society of Motor Manufacturers shows that, compared to 2013, new car registrations increased 9.3 per cent to 2.4 million units in the UK in 2014. Compared to 2013, the production and export of cars has kept stable in 2014 to 1.50 million units of which 1.2 million units exported. Given this information, which of the following are most likely to be true?

A) The UK has a comparative advantage in the production of cars.
B) Domestic production accounts for a large proportion of the supply of cars in the UK.
C) Out of the cars produced in the UK, 0.3 million cars were sold in the domestic market.
D) The demand for domestic cars exceeds supply in the UK.

Question 44

If the government sets £3 as the price ?oor for a bale of cotton when the equilibrium price is £1.50, _____.

A) there will be an excess of supply over demand for cotton
B) sellers may seek to sell cotton illegally above the price ?oor
C) more cotton will be imported into the country to increase supply
D) the quantity demanded and the quantity supplied of cotton will be equal

Question 45

Which of the following is true for a price ?oor?

A) It is illegal to sell a good at a price below the price ?oor set in the market.
B) The price ?oor must be higher than the equilibrium price to effectively reduce
C) A price ?oor creates a shortage in the market.
D) Price ?oors are usually set when the prices for essential goods like fuel are very high.

Question 46

In the above graph, Q_S and Q_D represent the supply and the demand curves respectively in the market for train tickets. Refer to the graph to answer the question.
Suppose price of a ticket is reduced to £15. Which of the following is likely to happen?

A) The supply curve will become less inelastic as the price falls.
B) The number of tickets sold will be equal to 250.
C) The demand curve will become vertical.
D) The buyers in the market will face a shortage of 50 tickets.

Question 47

In the following graph, Q_S and Q_D represent the supply and the demand curves respectively. Refer to the graph to answer the question.
If the maximum price imposed by the government is £1, the total quantity bought and sold in the market will be _____ units.

A) 200
B) 100
C) 0
D) 300

Question 48

The quantity demanded of good X in a market is 400 units. The quantity of X supplied to the market is 800 units. The market price is $4. Which of the following statements are likely to be true?

A) Buyers will negotiate with sellers and bid up the price of good X.
B) There is a shortage in the market for good X.
C) The price needs to fall for the market to be in equilibrium.
D) The elasticity of demand for good X is low.

Question 49

If the price ?oor for a good is set below the market equilibrium price, _____.

A) the consumption of the good will fall
B) there will be a shortage in the market
C) the equilibrium quantity and price will remain unchanged
D) the good will be exported to reduce the surplus in the market

Question 50

In the following graph, Q_S and Q_D represent the supply and the demand curves respectively. Refer to the graph to answer the question.
If the minimum price of the good is set at £2, which of the following is likely to happen?

A) The minimum price will not affect quantity demanded or supplied as it is set above the equilibrium price.
B) The total quantity of the good bought and sold in the market will be equal to 200 units.
C) There will be a surplus of 200 units in the market.
D) The imports of the good will increase.

Question 51

Which of the following is true for a price ceiling?

A) A price ceiling is a limit below which it is illegal to set a price.
B) A price ceiling usually leads to a shortage in a market.
C) A price ceiling is usually set above the equilibrium price.
D) A price ceiling is usually set for goods like alcohol to curb excess consumption.

Question 52

Which of the following is a feature of a separating equilibrium?

A) Two products of differing quality are sold in the same market.
B) There are clearly identi?able sub-markets in the market.
C) Consumers ?nd it di?cult to distinguish between the quality of the products in the market.
D) There is more than one point of equilibrium in the market.

Question 53

In the following graph, Q_S1 is the supply curve for labour and Q_D1 and Q_D2 are the demand curves for labour. Refer to the graph to answer the question.
When Q_D1 shifts to Q_D2, _____.

A) the equilibrium quantity of labour and the wage level remain unchanged
B) the quantity of labour supplied increases
C) the wage level falls to W₃
D) the supply of labour exceeds the demand for labour

Question 54

If it is di?cult to differentiate between good and bad workers, then the labour market is said to be under a _____ equilibrium.

A) pooling
B) separating
C) partial
D) Nash

Question 55

Suppose ?rms are able to hire labour from clearly identi?able markets such as the market for skilled labour, unskilled labour and semi-skilled labour. In other words, the labour market is under a _____ equilibrium.

A) pooling
B) partial
C) separating
D) Nash

Question 56

Which of the following provides a solution to the problem posed by Gresham's Law?

A) Separating equilibrium.
B) Pooling equilibrium.
C) Nash equilibrium.
D) Partial equilibrium.

Question 57

In the following graph, Q_S1 and Q_S2 are the supply curves for labour and Q_D1 and Q_D2 are the demand curves for labour. Refer to the graph to answer the question. When Q_S1 shifts to Q_S2 and Q_D1 shifts to Q_D2, _____.

A) the supply of labour exceeds the demand for labour
B) the demand for labour exceeds the supply of labour
C) the quantity of labour demanded falls
D) the equilibrium quantity of labour remains constant

Question 58

Which of the following is likely to be true for a market that is NOT in equilibrium?

A) There are no shortages or surpluses in the market.
B) The quantity demanded of the good equals the quantity supplied.
C) Buyers bene?t from trading in a market where the price is below the equilibrium price.
D) Sellers are likely to adopt strategies like discounting.

Question 59

In the following graph, Q_S1 and Q_S2 are the supply curves for labour and Q_D1 is the demand curve for labour. Refer to the graph to answer the question.
When Q_S1 shifts to Q_S2, _____.

A) the equilibrium quantity and wage level remain unchanged
B) the equilibrium quantity of labour increases
C) the wage level rises to W₃
D) the demand for labour exceeds the supply of labour

Question 60

If the price of grapes is below its equilibrium price, market forces will cause:

A) the price to rise as quantity demanded will rise.
B) the price to fall as sellers offer discounts on excess stocks.
C) the price to rise as buyers may begin to bid up the price .
D) the price to fall as quantity supplied will fall.

Question 61

If the equilibrium price of a product is above the price ceiling set by the government, there will be a surplus in the market.

Question 62

Given that shoes and shoe polish are complementary goods, an increase in the price of shoes will cause the equilibrium price and quantity of shoe polish to fall.

Question 63

An increase in the supply of oranges will cause the equilibrium price of oranges to rise, ceteris paribus.

Question 64

A firm that is operating with excess capacity is likely to have a high price elasticity of supply.

Question 65

If supply is inelastic, an increase in price will lead to a more-than-proportionate increase in quantity supplied.

Question 66

If the number of firms in the market increases, the equilibrium quantity of the product decreases given that demand remains unchanged.

Question 67

If the equilibrium price of a product is below the price floor set by the government, there will be a surplus in the market.

Question 68

If consumers expect the price of a product to rise in the future, the current equilibrium quantity in the market is likely to fall.

Question 69

An increase in the demand for bananas will cause the equilibrium price of bananas to rise, ceteris paribus.

Question 70

If the demand for a product is price elastic, then increasing supply will increase total revenue.

Question 71

Assuming that the supply of an inferior good does not change, a decrease in the consumer's income will decrease the equilibrium price and quantity of the good.

Question 72

Other things constant, an increase in the price of milk, used in the production of ice cream, will cause the supply curve for ice cream to shift to the left.

Question 73

The quantity demanded of a product changes when the demand curve for the product shifts either to the right or to the left.

Question 74

Ceteris paribus, technological advancements in production technology will reduce the equilibrium quantity of a good.

Question 75

If a firm exits the market, the supply curve in the market will shift to the left.

Question 76

If a consumer demands 2 books at £8 and a seller is willing to offer 1 book for £8, the trade will take place and the market for books will be in equilibrium.

Question 77

When a market is in disequilbrium, the willingness to demand will differ from the willingness to supply.

Question 78

A change in supply is represented as a shift of the supply curve, while a change in the quantity supplied is shown as a movement along the curve.

Question 79

The supply of cars will increase if the price of steel, an input used in the production of cars, reduces.

Question 80

When there is an increase in demand, the rise in the equilibrium price is greater if supply is price elastic.