Question 1

Which of the following statements is incorrect?

Accepted Answer

A)  In a recession, normal goods manufacturers are expected to have reductions in the demand. 
B)  In a recession, inferior goods manufacturers are not expected to have reductions in the demand. 
C)  All producers are going to be negatively affected in a recession. 
D)  None of the above is correct.

Question 2

If supply increases while demand decreases

Accepted Answer

A)  the equilibrium price will definitely increase. 
B)  the equilibrium quantity will definitely increase. 
C)  the equilibrium price will definitely decrease. 
D)  the equilibrium quantity will definitely decrease.

Question 3

If we assume that the demand for oil in oil importing countries is nearly vertical, then the economic incidence of oil export tariffs imposed by oil exporting countries mainly falls onto oil consumers in oil importing countries.

Accepted Answer

A) True 
 B)False

Question 4

An excess supply occurs at prices below the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 5

At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies. If the novel is offered for sale at a price of $3.95, then the publisher can expect to sell

Accepted Answer

A)  fewer than 9,000 copies. 
B)  9,000 copies. 
C)  more than 9,000 copies. 
D)  It is impossible to predict the effect of a lower price on sales.

Question 6

When the supply curve shifts up (supply declines), the equilibrium quantity falls, which means the demand declines.

Accepted Answer

A) True 
 B)False

Question 7

When rent controls are imposed below the current market price they can do all except

Accepted Answer

A)  increase the quantity of rental housing demanded. 
B)  reduce the quality of rental housing. 
C)  reduce the level of supply of rental housing. 
D)  create excess supply of rental housing.

Question 8

A price ceiling below the equilibrium price may lead to shortage of a good, black markets and other undesirable consequences.

Accepted Answer

A) True 
 B)False

Question 9

If the price of a good decreases and the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been

Accepted Answer

A)  an increase in demand. 
B)  a decrease in demand. 
C)  an increase in supply. 
D)  a decrease in supply.

Question 10

Assume that consumers who shop for single-family homes do not consider condos. Also assume that consumers who wish to purchase condos do not look at single-family homes. Based on these assumptions we can argue that these are two different markets.

Accepted Answer

A) True 
 B)False

Question 11

Assume that the demand for an electric toothbrush (X) is represented by the following equation:
 $$Q D _ { X } = 1000 - 10 P _ { X } - 5 P _ { Y } + 2 P _ { Z }$$ Which of the products Y and Z is a substitute and which of them is a complement to an electric toothbrush? Give examples for goods Y and Z.

Accepted Answer

The answer of Assume that the demand for an electric...

Question 12

If public transportation is a substitute to driving and downtown parking is a complementary service to driving, then a rise in the price of downtown parking will cause the supply of public transportation to increase.

Accepted Answer

A) True 
 B)False

Question 13

Recently eBay started to introduce controls in some of its categories on what the sellers can charge in terms of shipping. This policy might be necessary to protect the buyers because the economic incidence of shipping charges is entirely on the buyer.

Accepted Answer

A) True 
 B)False

Question 14

Assume that the market demand and the market supply are governed by the following equations:
 $$\begin{array} { c } 
Q _ { D } = 30 - 2 P \
Q _ { S } = 3 P
\end{array}$$ 
(i)Is the demand consistent with the law of demand? Please justify your answer.
(ii)Is the supply consistent with the law of supply?
(iii)What would be the equilibrium price and quantity in this market?

Accepted Answer

The answer of Assume that the market demand and the...

Question 15

Assume that the demand is estimated to be: $$Q _ { D } = 200 - 0.1 \text { Income } - 2 P$$ (i)Is this demand equation consistent with the law of demand? Explain your answer. (ii)Is this a demand for a normal or inferior good? (iii)Construct the demand schedule for this demand, evaluated at two different income levels (I = 100, and I = 200), using the table below: $$\begin{array} { | c | c | c | } \hline \text { Price } & \begin{array} { c } \text { Quantity Demanded } \ \text { Income } = 100 \end{array} & \begin{array} { c } \text { Quantity Demanded } \ \text { Income } = 200 \end{array} \ \hline & & \ 5 & & \ 10 & & \ 15 & & \ 20 & & \ 25 & & \ \hline \end{array}$$

Accepted Answer

The answer of Assume that the demand is estimated to...

Question 16

An economic recession with a decline in household incomes will negatively impact all retail businesses.

Accepted Answer

A) True 
 B)False

Question 17

Technological progress helps increase the productivity of labor, defined as the number of units of output produced per hour of labor. A rise in the productivity of labor in the production process, ceteris paribus, will cause

Accepted Answer

A)  the demand for the output to increase. 
B)  the demand for the output to decrease. 
C)  the supply of the output to increase. 
D)  the supply of the output to decrease. 
E)  None of the above is correct.

Question 18

Assume that the demand is represented by the following equation:
 $$Q _ { 0 } = 500 + 0.05 \text { income } - 5 P$$ Also assume that the supply is represented by the following equation:
 $$Q _ { s } = 5 P - 50$$ (i)Assume that the consumer income is $1,000. Please compute the market equilibrium price and quantity.
(ii)Now, assume that the consumer's income increases to $2,000. What will the new equilibrium values be now?
(iii)Graph the old and the new equilibrium and all the necessary curves.

Accepted Answer

The answer of Assume that the demand is represented by...

Question 19

Under which scenario will sellers of a product find it easier to pass cost increases onto consumers?

Accepted Answer

A)  When the demand curve is vertical 
B)  When the demand curve is downward sloping 
C)  When the demand curve is horizontal 
D)  None of the above is correct, as the shape of the demand plays no role in this process.

Question 20

Given the market demand schedule and the market supply schedule for hot dogs, graph the linear demand and the liner supply curves and indicate the equilibrium value. What is the equilibrium quantity and price? [Hint: linear function can be expressed as: ]
 $$\begin{array}{l}
\begin{array} { | l | l | l | l | l | } 
\hline \$ & \text { QD } && \$ & \text { Qs } \
\hline 0 & 100 && 5 & 100 \
\hline 5 & 0 && 5 & 100 \
\hline
\end{array}
\end{array}$$

Accepted Answer

The answer of Given the market demand schedule and the...

Exam 2: Demand, Supply, and Equilibrium Analysis

Which of the following statements is incorrect?

If supply increases while demand decreases

If we assume that the demand for oil in oil importing countries is nearly vertical, then the economic incidence of oil export tariffs imposed by oil exporting countries mainly falls onto oil consumers in oil importing countries.

An excess supply occurs at prices below the equilibrium price.

At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies. If the novel is offered for sale at a price of $3.95, then the publisher can expect to sell

When the supply curve shifts up (supply declines), the equilibrium quantity falls, which means the demand declines.

When rent controls are imposed below the current market price they can do all except

A price ceiling below the equilibrium price may lead to shortage of a good, black markets and other undesirable consequences.

If the price of a good decreases and the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been

Assume that consumers who shop for single-family homes do not consider condos. Also assume that consumers who wish to purchase condos do not look at single-family homes. Based on these assumptions we can argue that these are two different markets.

Assume that the demand for an electric toothbrush (X) is represented by the following equation: $Q D _ { X } = 1000 - 10 P _ { X } - 5 P _ { Y } + 2 P _ { Z }$ Which of the products Y and Z is a substitute and which of them is a complement to an electric toothbrush? Give examples for goods Y and Z.

If public transportation is a substitute to driving and downtown parking is a complementary service to driving, then a rise in the price of downtown parking will cause the supply of public transportation to increase.

Recently eBay started to introduce controls in some of its categories on what the sellers can charge in terms of shipping. This policy might be necessary to protect the buyers because the economic incidence of shipping charges is entirely on the buyer.

An economic recession with a decline in household incomes will negatively impact all retail businesses.

Technological progress helps increase the productivity of labor, defined as the number of units of output produced per hour of labor. A rise in the productivity of labor in the production process, ceteris paribus, will cause

Under which scenario will sellers of a product find it easier to pass cost increases onto consumers?