Deck 4: Equilibrium: How Supply and Demand Determine Prices

Question 1

If sellers want to sell more products than buyers are willing to purchase, we know that:

A) the current price is less than the equilibrium price.
B) quantity demanded exceeds quantity supplied.
C) the current price is greater than the equilibrium price.
D) the demand curve will likely increase.

Answer 1

C

Question 2

Reference: Ref 4-1 (Figure: Equilibrium) Refer to the figure. The equilibrium price (in $) is:

A) 8.
B) 10.
C) 16.
D) 12.

Answer 2

A

Question 3

In free markets, surpluses lead to:

A) lower prices.
B) higher prices.
C) surpluses.
D) unexploited gains from trade.

Answer 3

A

Question 4

A market can be described by the equations Qd = 100 - P and Qs = P. What are the equilibrium price and quantity in this market?

A) The equilibrium price is $50 and the equilibrium quantity is 50 units.
B) The equilibrium price is $100 and the equilibrium quantity is 100 units.
C) The equilibrium price is $0 and the equilibrium quantity is 0 units.
D) The equilibrium price is $0 and the equilibrium quantity is 100 units.

Question 5

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______.

A) equal; remain unchanged
B) be less than; rise
C) exceed; rise
D) decrease; fall

Question 6

Suppose that the equilibrium price in the market is $10. If the current market price is $7.50:

A) the equilibrium price will fall to $7.50.
B) competition among buyers will increase the current price.
C) the current price will fall below $7.50 as sellers compete for market share.
D) There is not enough information provided to answer the question.

Question 7

A) 10.
B) 250.
C) 100 and 400.
D) 275.5.

Question 8

(Figure: Supply-Driven Price Change) Refer to the figure. When the supply curve shifts from S0 to S1, the equilibrium price rises to:

A) $12 and the equilibrium quantity falls to 70.
B) $10 and the equilibrium quantity falls to 100.
C) $12 and the equilibrium quantity falls to 40.
D) $10 and the equilibrium quantity falls to 70.

Question 9

Suppose that a market is characterized as follows: consumers are willing and able to purchase 100 units and sellers are willing and able to sell 70 units. Which of the following statements are true?

A) There is a shortage of 30 units.
B) The market is not in equilibrium.
C) The price in the market will increase.
D) All of the answers are correct.

Question 10

Reference: Ref 4-2 (Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n):

A) excess supply of 2 units.
B) excess demand of 4 units.
C) surplus of 4 units.
D) shortage of 6 units.

Question 11

Reference: Ref 4-2 (Figure: Market Equilibrium) According to the figure, the equilibrium price and quantity are:

A) $1 and 4.
B) $4 and 8.
C) $2 and 4.
D) $3 and 6.

Question 12

(Figure: Demand-Driven Price Change) Refer to the figure. When the demand curve shifts from D0 to D1, the equilibrium price rises to:

A) $9 and the equilibrium quantity rises to 120.
B) $9 and the equilibrium quantity rises to 160.
C) $8 and the equilibrium quantity rises to 140.
D) $8 and the equilibrium quantity rises to 160.

Question 13

In free markets, shortages lead to:

A) lower prices.
B) higher prices.
C) surpluses.
D) unexploited gains from trade.

Question 14

In a market, the equilibrium condition is given by the following:

A) quantity demanded = quantity supplied
B) quantity demanded × quantity supplied
C) quantity demanded/quantity supplied
D) price × quantity demanded = quantity supplied

Question 15

Reference: Ref 4-2 (Figure: Market Equilibrium) Refer to the figure. At a price of $3, quantity supplied is ______ and quantity demanded is ______, leading to a _______.

A) 6; 2; surplus of 4 units
B) 2; 6; shortage of 8 units
C) 2; 4; surplus of 2 units
D) 4; 2; shortage of 2 units

Question 16

Which of the following statements is TRUE about equilibrium in markets? I. Demand always equals supply at equilibrium. II. Quantity demanded always equals quantity supplied at equilibrium. III. In a market diagram, demand and supply cross each other at the equilibrium point.

A) I only
B) I, II, and III
C) II and III only
D) I and III only

Question 17

(Figure: Price Adjustment) Refer to the figure. If the price of the product is $14, there is a:

A) shortage of 30 units of the product, and the price will rise to $16.
B) surplus of 20 units of the product, and the price will rise to $16.
C) shortage of 50 units of the product, and the price will rise to $16.
D) surplus of 40 units of the product, and the price will rise to $16.

Question 18

The key condition for equilibrium to occur in a market is:

A) the demand curve equals the supply curve.
B) quantity demanded equals quantity supplied.
C) price equals quantity.
D) demand for one good equals demand for all other goods.

Question 19

A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market?

A) The equilibrium price is $20 and the equilibrium quantity is 10 units.
B) The equilibrium price is $50 and the equilibrium quantity is 100 units.
C) The equilibrium price is $30 and the equilibrium quantity is 10 units.
D) The equilibrium price is $10 and the equilibrium quantity is 20 units.

Question 20

Reference: Ref 4-1 (Figure: Equilibrium) Refer to the figure. The equilibrium quantity (in units) is:

A) 8.
B) 10.
C) 16.
D) 12.

Question 21

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the demand curve for the product shifted to the right such that 10 more units of the good are demanded at every price, what is the new equilibrium price?

A) $12
B) $14
C) $16
D) $18

Question 22

Figure: Demand and Supply Reference: Ref 4-5 (Figure: Demand and Supply) Refer to the figure. Which of the following statements is TRUE? I. Buyers are willing to pay $20 for the 16th unit of output and it costs sellers $60 to produce that unit. II. The gains from trade are maximized at 20 units of output. III. At four units of output, there are unexploited gains from trade. IV. A free market is likely to produce less than 12 units of output.

A) II only
B) I and II only
C) I and III only
D) II, III, and IV only

Question 23

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the supply curve for the product shifted to the right such that 20 more units of the good are supplied at every price, what is the new equilibrium price?

A) $10
B) $12
C) $14
D) $16

Question 24

Reference: Ref 4-6 (Figure: Gains from Trade) Refer to the figure. What are the unexploited gains from trade at the free market equilibrium?

A) $1,000
B) $500
C) $0
D) $1,500

Question 25

Gains from trade are maximized at the:

A) equilibrium price and quantity.
B) midpoint on the demand curve.
C) point where output is maximized.
D) vertical intercept on the supply curve.

Question 26

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the supply curve for the product shifted to the right such that 10 more units of the good are supplied at every price, what is the new equilibrium price?

A) $12
B) $14
C) $16
D) $18

Question 27

Reference: Ref 4-4 (Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $8, then a:

A) surplus of 25 units would exist and price would tend to fall.
B) surplus of 25 units would exist and price would tend to rise.
C) shortage of 25 units would exist and price would tend to rise.
D) shortage of 25 units would exist and price would tend to fall.

Question 28

When a surplus exists in a market, we know that the actual price is:

A) above equilibrium price and quantity supplied is greater than quantity demanded.
B) above equilibrium price and quantity demanded is greater than quantity supplieB.
C) below equilibrium price and quantity demanded is greater than quantity supplieC.
D) below equilibrium price and quantity supplied is greater than quantity demanded.

Question 29

Reference: Ref 4-5 (Figure: Demand and Supply) Refer to the figure. At the equilibrium quantity, total surplus is:

A) $960.
B) $480.
C) $320.
D) $240

Question 30

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. The equilibrium P and Q are:

A) $10 and 50.
B) $12 and 35.
C) $40 and 14.
D) $14 and 40.

Question 31

When there is a shortage of 1,000 units of a particular good:

A) the price of the good will rise.
B) the price of the good will fall.
C) the quantity demanded of the good will equal 1,000 units.
D) there will be no change in the price of the good.

Question 32

At a free market equilibrium:

A) quantity demanded equals quantity supplied.
B) consumer surplus and producer surplus are maximized.
C) there are no unexploited gains from trade.
D) All of the answers are correct.

Question 33

Five new sellers enter a market (that previously had seven) and begin producing a good. Which of the following choices explains what happens to the equilibrium Q and P?

A) The demand curve will shift to the right, and the equilibrium P and Q will both rise.
B) The supply curve will shift to the right, the equilibrium P will fall, and the equilibrium Q will rise.
C) The supply curve will shift to the left, the equilibrium P will fall, and the equilibrium Q will rise.
D) The supply curve will shift to the right, the equilibrium P will rise, and the equilibrium Q will fall.

Question 34

Reference: Ref 4-4 (Table: Equilibrium Adjustment) Refer to the table. The equilibrium price is:

A) $2.
B) $4.
C) $6.
D) $8.

Question 35

For each good produced in a free market economy, demand and supply determine:

A) the price of the good, but not the quantity.
B) the quantity of the good, but not the price.
C) both the price and the quantity of the good.
D) neither price nor quantity, sellers determine the price.

Question 36

A free market achieves an equilibrium price and quantity due to:

A) the actions of buyers and sellers.
B) increased competition among sellers.
C) government regulations placed on market participants.
D) buyers' ability to affect market outcomes.

Question 37

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $12, there would be a:

A) shortage of 10 units.
B) shortage of 45 units.
C) surplus of 10 units.
D) surplus of 35 units.

Question 38

Which of the following statements is TRUE regarding free markets? I. The sum of consumer surplus and producer surplus are maximized. II. The sellers with the highest costs of production sell the goods. III. The buyers with the highest willingness to pay purchase the goods. IV. The government must subsidize firms to ensure that there are no unexploited gains from trade.

A) I only
B) I, II, and III only
C) II, III, and IV only
D) I and III only

Question 39

Reference: Ref 4-4 (Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a:

A) surplus of 50 units would exist and price would fall.
B) surplus of 50 units would exist and price would rise.
C) shortage of 50 units would exist and price would rise.
D) shortage of 50 units would exist and price would fall.

Question 40

Reference: Ref 4-3 (Table: Equilibrium Price, Quantity) Refer to the table. If the price in the market was $16, there would be a:

A) shortage of 10 units.
B) shortage of 35 units.
C) surplus of 10 units.
D) surplus of 45 units.

Question 41

Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Resource prices in this market increase; at the same time, the consumer population declines as migration causes an outflow of population to other regions. What happens to the supply curve and/or demand curve?

A) S1 shifts to S2 but then shifts back to S1. D1 remains at D1.
B) S1 shifts to S3 and D1 shifts to D2.
C) S1 shifts to S2 and D1 shifts to D3.
D) S1 shifts to S2 and D1 shifts to D2.

Question 42

Figure: Market Changes Reference: Ref 4-7 (Figure: Market Changes) Refer to the figures. If these figures represent the market for blue jeans, which figure shows the effect of an increase in the price of denim, a raw material used to make jeans?

A) Figure A
B) Figure B
C) Figure C
D) Figure D

Question 43

Why did Vernon Smith win the Nobel Prize in Economics in 2002?

A) He created the theory of supply and demand.
B) He used laboratory experiments as a tool to confirm the theory of supply and demand.
C) He was able to disprove the theory of supply and demand.
D) This is a trick question, because Vernon Smith did not win the Nobel Prize.

Question 44

In a free market in which an equilibrium price and quantity prevails:

A) consumer surplus is less than producer surplus.
B) consumer surplus is greater than producer surplus.
C) consumer surplus is the same as producer surplus.
D) consumer surplus and producer surplus are maximized.

Question 45

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

A) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.
B) The equilibrium price decreases; the equilibrium quantity increases.
C) The equilibrium price increases; the change in the equilibrium quantity is ambiguous.
D) The equilibrium price increases; the equilibrium quantity decreases.

Question 46

Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop.

A) S1 will shift to S2.
B) D1 will shift to D2.
C) S1 will shift to S3.
D) There will be no change in supply or demand in the market for corn.

Question 47

The September 11 terrorist attacks turned many people away from flying. The demand and supply model would predict which of the following events in the airline travel market?

A) The supply of airline travel would decrease, resulting in a higher equilibrium price and lower equilibrium quantity.
B) The supply of airline travel would increase, resulting in a lower equilibrium price and higher equilibrium quantity.
C) The demand for airline travel would decrease, resulting in a lower equilibrium price and lower equilibrium quantity.
D) The supply and demand for airline travel would decrease, resulting in a higher equilibrium price and higher equilibrium quantity.

Question 48

Reference: Ref 4-6 (Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

A) $1,000
B) $500
C) $0
D) $1,500

Question 49

The U.S. government limits the importation of Chinese-made bras. What effect does this trade restriction have on the market for bras?

A) The equilibrium price will increase and the equilibrium quantity will decrease.
B) The demand for bras will increase, leading to a lower equilibrium price.
C) The equilibrium price will increase and the equilibrium quantity will increase.
D) The equilibrium price will decrease, leading to a higher equilibrium quantity.

Question 50

An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity?

A) The equilibrium price decreases; the change in the equilibrium quantity is ambiguous.
B) The equilibrium price decreases; the equilibrium quantity increases.
C) The equilibrium price increases; the change in the equilibrium quantity is ambiguous.
D) The equilibrium price increases; the equilibrium quantity decreases.

Question 51

Reference: Ref 4-7 (Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

A) Figure A
B) Figure B
C) Figure C
D) Figure D

Question 52

Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If this depicts the equilibrium in the market for computer printers, what will happen when the price of computers increases?

A) There is not enough information to determine what will happen.
B) D1 will shift to D2.
C) D1 will shift to D3.
D) S1 will shift to S3.

Question 53

In a free market when there are unexploited gains from trade:

A) the market is slow to adjust to this situation.
B) there are sellers who are unwilling to sell at prices buyers are willing to pay.
C) there are buyers who are willing to pay more for goods than sellers are asking.
D) an equilibrium price and quantity have been reached.

Question 54

Reference: Ref 4-7 (Figure: Market Changes) Refer to the figures. If the figures represent the market for a popular soda, which figure shows the effect of an increase in the price of a competing energy drink?

A) Figure A
B) Figure B
C) Figure C
D) Figure D

Question 55

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

A) The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of Brazilian rosewood guitars on the used market.
B) The price for used Brazilian rosewood guitars will decrease as fewer people decide to sell their guitars.
C) The price of used Brazilian rosewood guitars will increase at first and then decrease, since an increase in demand raises prices causing people to buy less of the product.
D) The price for used Brazilian rosewood guitars will increase as more people try to cash in by selling their increasingly rare guitars.

Question 56

Figure: Demand, Supply Shifts Reference: Ref 4-8 (Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. If technological innovations lower the costs of production, what will happen?

A) D1 will shift to D3 and equilibrium price and equilibrium quantity will increase.
B) S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease.
C) D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease.
D) S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

Question 57

Lead, an input in the production of ammunition, has increased in price from $0.60/lb in 2006 to over $1.50/lb in 2007. What happened to the equilibrium price and quantity of ammunition over this period?

A) The equilibrium price increased and the equilibrium quantity decreased.
B) The equilibrium price increased and the equilibrium quantity increaseB.
C) The equilibrium price decreased and the equilibrium quantity decreaseC.
D) The equilibrium price decreased and the equilibrium quantity increased.

Question 58

Suppose there is an increase in demand in a market and no change in the supply. What will happen to the market equilibrium price and quantity?

A) Equilibrium price will rise; equilibrium quantity will rise.
B) Equilibrium price will rise; equilibrium quantity will fall.
C) Equilibrium price will fall; equilibrium quantity will rise.
D) Equilibrium price will fall; equilibrium quantity will fall.

Question 59

Which of the following would increase the demand for beef?

A) lower pork prices
B) higher consumer income
C) higher prices of feed grains used to feed beef cattle
D) an increase in the price of beef

Question 60

Gains from trade are maximized when:

A) the market price is higher than the equilibrium price.
B) the market price is less than the equilibrium price.
C) the market price is equal to the equilibrium price.
D) there are additional potential trades available that have not been completed.

Question 61

When the price of a good increases, demand for the good will:

A) increase.
B) decrease.
C) be unaffected.
D) depend on the corresponding change in supply.

Question 62

When the price of a good decreases:

A) the quantity demanded increases.
B) demand increases.
C) the quantity supplied increases.
D) supply increases.

Question 63

Technological advances have increased the supply of digital cameras. As a result the:

A) demand for digital cameras will increase, putting downward pressure on the price of digital cameras.
B) quantity demanded for digital cameras will increase.
C) quantity supplied of digitals cameras will increase, putting downward pressure on the price of digital cameras.
D) demand and supply of digital cameras will both increase.

Question 64

(Figure: Demand Shift) In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that:

A) demand increased, which caused an increase in supply.
B) quantity demanded increased, which caused an increase in supply.
C) demand increased, which caused an increase in quantity supplied.
D) quantity demanded increased, which caused an increase in quantity supplied.

Question 65

Which of the following would NOT lead to a decrease in the price of domestic automobiles?

A) an increase in the price of foreign-made automobiles
B) an economic recession, which decreases consumer income
C) a decrease in the wages paid to union auto workers
D) an increase in the number of domestic automakers

Question 66

Which choice explains how the OPEC crisis of 1973 affected oil prices?

A) The supply of oil was reduced, leading to a rise in oil prices.
B) The supply of oil was increased, leading to a fall in oil prices.
C) The demand for oil increased, leading to a rise in oil prices.
D) The demand for oil decreased, leading to a fall in oil prices.

Question 67

An early frost in the vineyards of Napa Valley would cause a(n):

A) increase in the demand for wine, increasing price.
B) increase in the supply of wine, decreasing price.
C) decrease in the demand for wine, decreasing price.
D) decrease in the supply of wine, increasing price.

Question 68

In a free market equilibrium, demand equals supply at the equilibrium price.

Question 69

(Figure: Supply Shift) In the figure, the supply curve shifted from S0 to S1. To describe this movement, we would say that: Figure: Supply Shift

A) demand decreased, which caused a decrease in supply.
B) supply decreased, which caused a decrease in quantity demanded.
C) supply decreased, which caused a decrease in demand.
D) supply increased, which caused a decrease in quantity demanded.

Question 70

When you move along a demand curve:

A) only price is held constant.
B) income and the price of the good are held constant.
C) all non-price determinants of demand are held constant.
D) all determinants of quantity demanded are held constant.

Question 71

After adjusting for inflation, a comparison of the price of leg warmers reveals that the price of leg warmers was significantly higher in the 1980s than it is today. Which of the following can explain this?

A) Jeans become preferable to leg warmers, decreasing the demand for leg warmers.
B) Leg warmers were fashionable in the 1980s (fact), and hence the high demand drove prices up in the 1980s.
C) An increase in the price of cotton used to make leg warmers has led to a decrease in the price of leg warmers today.
D) The expected increase in the price of leg warmers has led to a decrease in the price of leg warmers today.

Question 72

Economic growth in China has led to more Chinese people owning cars which:

A) increased demand for oil, causing oil prices to rise.
B) decreased demand for oil, causing oil prices to rise.
C) increased demand for oil but decreased supply, causing oil prices to increase rapidly.
D) increased demand and supply of oil, causing oil prices to increase rapidly.

Question 73

When Asian countries went into a recession in 1997, the demand for oil _______ and the price of oil ________.

A) increased; increased
B) decreased; increased
C) decreased; decreased
D) increased; decreased

Question 74

Which of the following might explain why the price of DVD players has been falling?

A) an increase in consumer income
B) a decrease in the price of high-definition Blu-ray players
C) a decrease in the price of DVDs
D) an increase in the price of gasoline

Question 75

In 1980 when Iraq attacked Iran, the price of oil _______ because of a(n) ______.

A) increased; disruption in the supply of oil
B) increased; decrease in the demand for oil
C) fell; increased demand for oil
D) fell; increased quantity of oil supplied

Question 76

OPEC is able to raise oil prices by:

A) increasing the demand for oil.
B) decreasing the supply of oil by cutting production.
C) decreasing transportation costs, a complement to oil.
D) subsidizing the oil production of developing countries.

Question 77

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the Gulf War of 1991 all affected oil prices by:

A) increasing the demand for oil.
B) reducing the supply of oil.
C) reducing the demand for oil.
D) increasing the supply of oil.

Question 78

A demand curve shows the relationship between:

A) quantity demanded and quantity supplied, which are positively related.
B) quantity demanded and quantity supplied, which are negatively relateB.
C) price and quantity demanded, which are positively relateC.
D) price and quantity demanded, which are negatively related.

Question 79

The Arab Oil Embargo of 1973, the Iranian Revolution of 1979, and the growth of China and India all affected oil prices by:

A) increasing the demand for oil.
B) reducing the supply of oil.
C) increasing the supply of oil.
D) None of the answers is correct.

Question 80

Which of the following would cause the current supply of iPods to increase?

A) an economic boom, which increases the amount that people are willing to spend on personal electronics
B) a decrease in the price of songs on iTunes
C) the expectation that the future price of iPods will decrease
D) an increase in the wages offered to manufacturers of iPods