Deck 3: Supply and Demand

Question 1

Which of the following will not cause the demand curve for good X to shift?

A)a change in the price of X
B)a change in the price of Y,a complement
C)a change in the price of Z,a substitute
D)an increase in average disposable real income

Answer 1

A

Question 2

A good that is similar to another,and can be consumed in place of it,is called

A)a normal good.
B)an inferior good.
C)a complementary good.
D)a substitute good.

Answer 2

D

Question 3

The rationing function of price

A)occurs when there is a movement of resources into or out of markets as a result of changes in the equilibrium market price.
B)is also known as the guiding function of price.
C)occurs when consumers change their tastes and preferences.
D)occurs only when the market experiences severe shortages.

Answer 3

C

Question 4

Which of the following will result in a decrease in demand for residential housing in the short run?

A)a decrease in the price of lumber
B)an increase in the wages of carpenters
C)a decrease in real household incomes
D)a decrease in the prices of residential housing

Question 5

How long is the "short-run" time period in the economic analysis of the market?

A)three months or one business quarter
B)total time in which sellers already in the market respond to changes in demand and equilibrium price
C)total amount of time it takes new sellers to enter the market
D)total amount of time it takes original sellers to leave the market

Question 6

A movement along a demand curve may be caused by a change in

A)the non-price determinants of demand.
B)the change in consumer expectations.
C)the change in demand.
D)the change in supply.

Question 7

Which of the following refers to a shift in the demand curve?

A)"This new advertising campaign should really increase our demand."
B)"Let's drop our price to increase our demand."
C)"We dare not raise our price because our demand will drop."
D)"If new sellers enter the market,the demand for the product is bound to increase."

Question 8

The guiding function of price is

A)the movement of price to clear the market of any shortages or surpluses.
B)the use of price as a signal to guide government on the use of market subsidies.
C)a long-run function resulting in the movement of resources into or out of markets.
D)the movement of price as a result of changes in the demand for a product.

Question 9

In the long run if there is a shortage in the market for a product,the guiding (allocation)function of price can be expected to cause

A)an increasing shift in the demand for the product.
B)a decreasing shift in the demand for the product.
C)an increasing shift in the supply of the product.
D)a decreasing shift in the supply of the product.

Question 10

Which of the following best describes the "guiding function" of price?

A)In response to a surplus or shortage in two markets,price serves as a "guiding function" by decreasing in one market and increasing in the other market in the short run.
B)The guiding function of price is the movement of resources into or out of markets in response to a change in the equilibrium price of a good or service.
C)The guiding function of price occurs when the market price changes to eliminate the imbalance between supply and demand caused by a shortage or surplus at the original price.
D)The guiding function usually occurs in the short run while the rationing function usually occurs in the long run.

Question 11

Coke and Pepsi are substitutes if

A)the demand for Coke increases when the price of Pepsi falls.
B)the demand for Coke increases when the price of Pepsi rises.
C)the supply of Coke increases when the price of Pepsi falls.
D)the demand for Coke and Pepsi rise and fall together.

Question 12

In the short-run if there is a surplus in the market for a product,the rationing function of price can be expected to cause

A)an increasing shift in the demand for the product.
B)a decreasing shift in the supply of the product.
C)an increase in the market price of the product.
D)a decrease in the market price of the product.

Question 13

All of the following are non-price determinants of demand except

A)tastes and preferences.
B)income.
C)technology.
D)future expectations.

Question 14

Which of the following will change only the quantity demanded of oranges?

A)an increase in the population
B)a change in the price of tangerines
C)a change in the price of oranges
D)a decrease in the taste and preferences for oranges

Question 15

Which of the following would cause a decrease in the demand for fish?

A)The price of red meat increases.
B)The price of fish increases.
C)The price of chicken decreases.
D)The number of fishing boats decreases.

Question 16

Two goods are ________ if the quantity consumed of one increases when the price of the other decreases.

A)normal
B)superior
C)complementary
D)substitute

Question 17

Which of the following can result in a decrease in the demand for I-Pods in the short run?

A)a decrease in the population
B)a decrease in real household incomes
C)a decrease in the price of MP4s
D)All of the above

Question 18

The "law" of demand can be best described by

A)people will buy things that they enjoy.
B)if incomes rise,people will buy more.
C)a rise in price will cause shortages.
D)a fall in price will increase quantity demanded.

Question 19

If the price of a substitute increases,which of the following is most likely to happen in the market for the product under consideration in the short run?

A)Supply will increase.
B)Firms will leave the market.
C)Firms will devote more variable inputs in the production of this good.
D)Firms will devote less variable inputs in the production of this good.

Question 20

Which of the following best applies to the distinction between the "long run" and the "short run"?

A)The short run is a period of approximately 1-6 months while the long run is any time frame which is longer.
B)In the short run,only new firms may enter,while in the long-run firms may either enter or exit the market.
C)The rationing function of price is a short-run phenomenon whereas the guiding function is a long-run phenomenon.
D)All of the above statements are correct.

Question 21

A market is in equilibrium when

A)supply is equal to demand.
B)the price is adjusting upward.
C)the quantity supplied is equal to the quantity demanded.
D)tastes and preference remain constant.

Question 22

Which of the following would cause a decrease in the price of a good?

A)an increasing shift in the supply of a good and no shift in demand
B)a decreasing shift in the supply of a good and no shift in demand
C)an increasing shift in the demand for good and no shift in supply
D)an increasing shift in the demand for good and a decreasing shift in supply

Question 23

The switch to the use of ethanol in gasoline is driven primarily by its relatively lower price.Assuming a competitive market,what effect would this change have on the equilibrium price and output for gasoline?

A)Price rises,output falls.
B)Price falls,output rises.
C)Price rises,output rises.
D)Price falls,output falls.

Question 24

Which of the following will not cause a short-run shift in the supply curve?

A)a change in the number of sellers
B)a change in the cost of resources
C)a change in the price of the product
D)a change in future expectations

Question 25

Which of the following would indicate that price is temporarily above its market equilibrium?

A)There are a number of producers who are left with unwanted inventories.
B)There are a number of customers who are looking for a good but cannot find sellers.
C)New firms decide to enter the market.
D)The government must step in and impose a tax on the good.

Question 26

Which of the following would cause a leftward shift in the demand curve for a good?

A)an increase in income
B)an increase in the price of a complementary good
C)an increase in the price of a substitute
D)the expectation that there will be a shortage in the availability of the good

Question 27

All of the following are non-price determinants of supply except

A)costs.
B)technology.
C)income.
D)future expectations.

Question 28

Holding supply constant,an increase in demand will

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

Question 29

An increase in input prices will cause

A)supply to shift rightward,equilibrium price to rise,and equilibrium quantity to fall.
B)supply to shift leftward,equilibrium price to rise,and equilibrium quantity to fall.
C)supply to shift rightward,equilibrium price to fall,and equilibrium quantity to rise.
D)supply to shift leftward,equilibrium price to fall ,and equilibrium quantity to rise.

Question 30

Which of the following applies most generally to supply in the long run?

A)Average total cost must decline.
B)Producers are able to make change in all their factors of production.
C)Producers are only able to make change in their variable factors of production.
D)All original producers will leave the market.

Question 31

Comparative statics analysis in economics is best illustrated as

A)the comparison of equilibrium points before and after changes in the market have occurred.
B)a comparison of two types of markets.
C)the comparison of the percentage of change in the one variable divided by the percentage change in the other variable.
D)an analytical technique used to show best case scenarios of demand and supply curves.

Question 32

Which of the following could cause a long-run shift in demand as part of the "guiding function of price"?

A)a change in tastes and preferences
B)an increase in price caused by a shift in supply
C)income shift caused by an economic recession
D)an increase in number of buyers

Question 33

Which of the following indicates that there is a shortage in the market?

A)Demand is rising.
B)Demand is falling.
C)Price is rising.
D)Price is falling.

Question 34

Which of the following is a common determinant of both supply and demand?

A)income
B)future expectations
C)tastes and preferences
D)sales tax

Question 35

A fall in the price of pesticide use in the production of cotton will

A)decrease the supply of cotton,causing the supply curve of cotton to shift to the left.
B)increase the supply of cotton,causing the supply curve of cotton to shift to the left.
C)cause a downward movement along the supply curve of cotton.
D)have no effect on the supply of cotton.
E)None of the above

Question 36

In the short run,a change in the equilibrium price will

A)always lead to inflation.
B)cause a shift in the demand curve.
C)cause a shift in the supply curve.
D)cause a change in the quantity demanded or supplied.

Question 37

Which of the following would lead to a short-run market surplus for tomatoes?

A)The price of tomatoes increases.
B)A new government study shows that tomatoes have a greater risk of contamination from salmonella.
C)An increase in the price of potatoes.
D)A decrease in the number of tomato growers.

Question 38

Which of the following is correct? The supply curve will shift when

A)income,preferences,or the number of suppliers change.
B)income,preferences,or the number of buyers change.
C)income,preferences,or production technology changes.
D)the number of sellers and the number of buyers change.
E)production technology and input prices change.

Question 39

Which of the following statements is false?

A)An increase in demand causes equilibrium price and quantity to rise.
B)A decrease in demand causes equilibrium price and quantity to fall.
C)An increase in supply causes equilibrium price to fall and quantity to rise.
D)A decrease in supply causes equilibrium price to rise and quantity to rise.

Question 40

Which of the following would cause a short-run decrease in the quantity supplied of personal computers?

A)The price of CPUs decreases.
B)The price of software decreases.
C)The number of PC manufacturers decreases.
D)The cost of manufacturing PCs decreases.

Question 41

Annual demand and supply for the Entronics company is given by:
Q_D = 5,000 + 0.5 I + 0.2 A - 100P,and Q_S = -5000 + 100P
where Q is the quantity per year,P is price,I is income per household,and A is advertising expenditure.
a.If A = $10,000 and I = $25,000,what is the demand curve?
b.Given the demand curve in part a.,what is equilibrium price and quantity?
c.If consumer incomes increase to $30,000,what will be the impact on equilibrium price and quantity?

Question 42

List the major non-price determinants of demand.

Question 43

The market for milk is in equilibrium.Recent health reports indicate that calcium is absorbed better in natural forms such as milk,and at the same time,the cost of milking equipment rises.Carefully analyze the probable effects on the market.

Question 44

Suppose that the demand for oranges increases.Carefully explain how the rationing function of price will restore market equilibrium.

Question 45

A good's Demand Curve is Q_D = 25 - P,and its Supply Curve is Q_S = 10 + 2P.
a.When P = $20,what is the difference,if any,between Q_D and Q_S?
b.When P = $3,what is the difference,if any,between Q_D and Q_S?
c.What are the equilibrium values of P and Q?

Question 46

A good's Demand Curve is Q_D = 50 - 2P,and its Supply Curve is Q_S = 40 + P.
a.When P = $10,what is the difference,if any,between Q_D and Q_S?
b.When P = $2,what is the difference,if any,between Q_D and Q_S?
c.What are the equilibrium values of P and Q?

Question 47

List the major non-price determinants of supply.

Question 48

For each of the following sets of supply and demand curves,calculate equilibrium price and quantity.
a.Q_D = 2000 - 2P; Q_S = 2P
b.Q_D = 500 - P; Q_S = 50 + P
c.Q_D = 5000 - 10P; Q_S = -1000 + 5P

Question 49

For each of the following changes,show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run.
a.The government requires pollution control filters that raise costs on goods.
b.Wages of workers in this industry fall.
c.There is an improvement in technology.
d.The price of the good falls.
e.Producers expect that the price of the good will fall in the future.

Question 50

Suppose that macroeconomic forecasters predict that the economy will be expanding in the near future.How might managers use this information?

Question 51

For each of the following changes,show the effect on the demand curve and state what will happen to market equilibrium price and quantity in the short run.
a.Consumers expect that the price of the good will be higher in the future.
b.The price of a substitute good rises.
c.Consumer incomes fall,and the good is normal.
d.Consumer incomes fall,and the good is inferior.
e.A medical report is published showing that this good is hazardous to your health.
f.The price of the good rises.

Question 52

Suppose that the demand for oranges increases.Explain the long-run effects of the guiding function of price in this scenario.

Question 53

Industry supply and demand are given by Q_D = 1000 - 2P and Q_S = 3P.
a.What is the equilibrium price and quantity?
b.At a price of $100,will there be a shortage or a surplus,and how large will it be?
c.At a price of $300,will there be a shortage or a surplus,and how large will it be?