The Exploration of Economics International Edition 4th Edition by Robert L. Sexton - Test Bank

The Exploration of Economics International Edition 4th Edition by Robert L. Sexton – Test Bank

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Chapter 5—Bringing Supply and Demand Together

TRUE/FALSE

If the market for Rolex watches is in equilibrium, the quantity of Rolex watches demanded will equal the quantity of Rolex watches supplied.

ANS: T PTS: 1

Price reductions will usually result whenever the quantity supplied exceeds the quantity demanded at the current price.

ANS: T PTS: 1

If the soccer ball market is in equilibrium at a price of $22 per ball, an increase in the supply of soccer balls will cause a shortage at that price.

ANS: F PTS: 1

If the demand for apples increases at the same time the supply of apples falls, the price of apples will tend to fall.

ANS: F PTS: 1

With knowledge about the direction, but not the magnitude, of simultaneous shifts in supply and demand, one can always tell the direction of changes in the equilibrium price, but not the direction of changes in the equilibrium quantity traded.

ANS: F PTS: 1

When both supply and demand shift in the same direction, the change in the equilibrium quantity traded will be in the same direction as the shifting curves.

ANS: T PTS: 1

The main purpose of government price controls is to keep prices from rising above their equilibrium levels.

ANS: F PTS: 1

Price floors get their name from the fact that they represent a minimum price below which the legal price cannot fall.

ANS: T PTS: 1

Price ceilings cause surpluses.

ANS: F PTS: 1

Either a price floor or a price ceiling will result in a smaller quantity exchanged than if the price was at its equilibrium level.

ANS: T PTS: 1

An increase in the expected future price of a good may act to increase the present price of the good.

ANS: T PTS: 1

If there is a ceiling price below the equilibrium level, a decrease in demand will worsen the shortage.

ANS: F PTS: 1

When a demand curve shifts, both the equilibrium price and quantity traded will change in the same direction as a result.

ANS: T PTS: 1

When a supply curve shifts, the equilibrium price will change in the opposite direction from the shift in supply and the quantity traded will change in the same direction as the shift in supply.

ANS: T PTS: 1

If one observed that both the price and equilibrium quantity of a good traded increased, it could not have been caused by a shift in supply.

ANS: T PTS: 1

Either a price floor or a price ceiling above the equilibrium price would cause a surplus.

ANS: F PTS: 1

For the price in a market to remain the same, while the quantity traded fell, both supply and demand would have to shift to the left.

ANS: T PTS: 1

When supply shifts to the left, it would make the surplus from a price floor smaller, other things equal.

ANS: T PTS: 1

For a normal good, if incomes rise and the price of a complement rose, without more information, we would not know which direction either the equilibrium price or quantity traded will change.

ANS: T PTS: 1

If both buyers and sellers of a good expect its price to fall in the near future, we would expect that to cause the current price and the quantity traded to increase as a result.

ANS: F PTS: 1

MULTIPLE CHOICE

Suppose the United States steps up efforts to combat drug trafficking and, with the aid of the Colombian military, destroys a significant percentage of cocaine crops. Predict the impact of increased drug interdiction on the market for cocaine in Los Angeles.

a.	The supply of cocaine will increase causing the price of cocaine to increase.
b.	The demand for cocaine will increase causing the price of cocaine to increase.
c.	The supply of cocaine will decrease causing the price of cocaine to increase.
d.	There will be a movement up along the supply curve of cocaine.
e.	The demand for cocaine will decrease causing the price of cocaine to decrease.

ANS: C PTS: 1

Steel mill wage costs increase by 18 percent over a year. What is the likely economic effect on the market for steel?

a.	The increase in wage costs will shift the demand curve for steel to the left, increasing the cost of steel.
b.	There is a decrease in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.
c.	There is an increase in the cost of producing steel, which shifts the supply curve of steel to the left, thereby increasing the price of steel.
d.	There is an increase in the cost of producing steel, which shifts the supply curve of steel to the right, thereby increasing the price of steel.
e.	There is an increase in the cost of producing steel, which shifts the supply curve of steel to the right, thereby decreasing the price of steel.

ANS: C PTS: 1

A more efficient means of processing tree bark to produce an anticancer drug is discovered. As a result, the supply curve for the drug will:

a.	shift to the right, increasing the price of the drug.
b.	shift to the left, increasing the price of the drug.
c.	shift to the right, decreasing the price of the drug.
d.	shift to the left, decreasing the price of the drug.
e.	remain stationary, but movement along the supply curve will occur.

ANS: C PTS: 1

Which of the following would cause the quantity of wheat bread demanded to increase, but not the demand for wheat?

a.	a reduction in the price of rye, used to produce rye bread
b.	a new scientific study demonstrating that wheat bread reduces the risk of colon cancer
c.	a decrease in the price of rye bread
d.	an increase in the number of farmers growing wheat
e.	an increase in the price of wheat flour

ANS: D PTS: 1

Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, then most probably:

a.	the price of tea will decrease.
b.	the price of coffee will decrease.
c.	the demand for tea will increase.
d.	the supply of tea will increase.
e.	both c. and d. are correct.

ANS: C PTS: 1

You notice that the price of orange juice at your local grocery store has increased. Which of the following statements is not a possible explanation for the rise in the price of orange juice?

a.	Frosty weather destroys oranges causing the price of oranges to increase.
b.	As a result of an increase in income, consumers wish to purchase more orange juice at every price level.
c.	A recent scientific study is reported in the press that suggests that apple juice may be contaminated with pesticides.
d.	Due to the bioengineering of orange trees, the domestic supply of oranges increases.
e.	The supply curve for grapefruits shifts to the left.

ANS: D PTS: 1

Coca-Cola bottlers increased their prices as the price of sugar (an important ingredient in producing Coke) rose sharply in the late 1980s. Under these circumstances, the increase in the price of Coke occurs as a result of a(n):

a.	decrease in supply.
b.	decrease in demand.
c.	increase in supply.
d.	increase in demand.
e.	increase in both demand and supply.

ANS: A PTS: 1 NOT: Revised

In 1975 a pocket calculator cost more than $50; in 1990 a calculator of the same quality cost less than $10. Which of the following explanations is most consistent with these facts?

a.	Intense competition in the calculator industry caused the supply curve for calculators to shift to the left, depressing the price.
b.	An increase in the demand for calculators led to the price drop.
c.	An improvement in technology caused the supply of calculators to increase, depressing their price.
d.	As the population grew, fewer expensive calculators were needed, causing prices to fall.

ANS: C PTS: 1

Which of the following would most likely increase the price of chicken?

a.	a reduction in the price of grains used to produce chicken feed
b.	a reduction in the price of beef, a substitute for chicken
c.	unusually hot weather that kills millions of chickens before they are ready for market
d.	a decrease in consumer income

ANS: C PTS: 1

In an effort to reduce the surplus of dairy products, agricultural legislation paid dairy farmers to slaughter their herds and sell them to packinghouses (meat producers) in 1996-1997. How did this influence the market for beef?

a.	demand increased, leading to higher beef prices
b.	demand decreased, leading to lower beef prices
c.	supply increased, leading to lower beef prices
d.	supply decreased, leading to higher beef prices

ANS: C PTS: 1

Are markets always in equilibrium?

a.	Yes, they are always at the equilibrium point, or very close to it.
b.	Yes, because very few things tend to alter supply and demand.
c.	No, but if there is no outside interference, they tend to move toward equilibrium.
d.	No, they never “settle down” into a stable price and quantity.
e.	It is uncertain; economic theory has no answer to this question.

ANS: C PTS: 1

Which of the following is the correct way to describe equilibrium in a market?

a.	At equilibrium, demand equals supply.
b.	At equilibrium, quantity demanded equals quantity supplied.
c.	At equilibrium, market forces no longer apply.
d.	Equilibrium is a tendency for price to change, a state of perpetual motion.
e.	At equilibrium, the “fairest” price for output is achieved.

ANS: B PTS: 1

At the equilibrium price for gasoline:

a.	everyone with the desire and the income to buy gasoline at that price can do so.
b.	surpluses are inevitable.
c.	quantity demanded exceeds the quantity supplied.
d.	all sellers willing and able to sell gasoline at that price can do so.
e.	both a. and d. are correct.

ANS: E PTS: 1

At an equilibrium price:

a.	quantity demanded exceeds quantity supplied.
b.	quantity demanded equals quantity supplied.
c.	quantity demanded is less than quantity supplied.
d.	there is no scarcity.
e.	both b. and d. are correct.

ANS: B PTS: 1

A market will experience a __________ whenever the price is fixed above the equilibrium price and a __________ whenever the price is fixed below the equilibrium price.

a.	shortage; shortage
b.	surplus; surplus
c.	shortage; surplus
d.	surplus; shortage

ANS: D PTS: 1

Table 5-1

PRICE per large pepperoni pizza	QUANTITY DEMANDED of large pepperoni pizzas	QUANTITY SUPPLIED of large pepperoni pizzas
$10	1,000 units	5,500 units
9	2,000 units	5,000 units
8	3,000 units	4,500 units
7	4,000 units	4,000 units
6	5,000 units	3,500 units
5	6,000 units	3,000 units
4	7,000 units	2,500 units
3	8,000 units	2,000 units
2	9,000 units	1,500 units
1	10,000 units	1,000 units

Refer to Table 5-1. What is the equilibrium price in the example?

a.	$9
b.	$8
c.	$7
d.	$6
e.	$5

ANS: C PTS: 1

Refer to Table 5-1. At a price of $10, there is a __________ of __________ pizzas.

a.	shortage; 4,500
b.	surplus; 4,500
c.	shortage; 6,500
d.	surplus; 6,500
e.	surplus; 5,500

ANS: B PTS: 1

Refer to Table 5-1. At a price of $4, there is a __________ of __________ pizzas.

a.	shortage; 4,500
b.	surplus; 4,500
c.	shortage; 6,500
d.	surplus; 6,500
e.	shortage; 9,500

ANS: A PTS: 1

Table 5-2

PRICE compact disks	QUANTITY DEMANDED compact disks	QUANTITY SUPPLIED compact disks
$18	1,000,000 units	5,500,000 units
17	2,000,000 units	5,000,000 units
16	3,000,000 units	4,500,000 units
15	4,000,000 units	4,000,000 units
14	5,000,000 units	3,500,000 units
13	6,000,000 units	3,000,000 units
12	7,000,000 units	2,500,000 units
11	8,000,000 units	2,000,000 units
10	9,000,000 units	1,500,000 units
9	10,000,000 units	1,000,000 units

Refer to Table 5-2. What is the equilibrium price in the example?

a.	$17
b.	$16
c.	$15
d.	$14
e.	$13

ANS: C PTS: 1

Refer to Table 5-2. At $10 there is a __________ of __________ compact discs.

a.	surplus; 10,500,000
b.	surplus; 7,500,000
c.	shortage; 7,500,000
d.	shortage; 10,500,000
e.	None of the above are correct.

ANS: C PTS: 1

Refer to Table 5-2. At $17 there is a __________ of __________ compact discs.

a.	shortage; 3,000,000
b.	shortage; 7,000,000
c.	surplus; 7,000,000
d.	surplus; 3,000,000
e.	None of the above are correct.

ANS: D PTS: 1

When there is an excess quantity demanded of a product at the current price, then:

a.	the price will tend to fall.
b.	the price will tend to rise.
c.	the price must be above the equilibrium price.
d.	producers will reduce output and sales will fall.

ANS: B PTS: 1

When there is an excess quantity supplied of a product at the current price, then:

a.	the market price must be below equilibrium price.
b.	the market price will tend to rise.
c.	the market price must be above equilibrium price.
d.	the market price will tend to fall.
e.	both c. and d. will occur.

ANS: E PTS: 1

Figure 5-1

The diagram below represents the market for butter.

Refer to Figure 5-1. The equilibrium price of butter is:

a.	$5.
b.	$3.
c.	$2.
d.	$1.
e.	50 cents.

ANS: B PTS: 1

Refer to Figure 5-1. If the current price of butter equals $5, you would expect to find:

a.	the market in equilibrium at 2,000 pounds per year.
b.	the market in equilibrium at 8,000 pounds per year.
c.	that the market is not in equilibrium, and that the quantity supplied is greater than the quantity demanded.
d.	that the market is not in equilibrium, and that the quantity demanded is greater than the quantity supplied.

ANS: C PTS: 1

Refer to Figure 5-1. If the current price of butter equals $2, you would expect to find:

a.	the market in equilibrium at 3,000 pounds per year.
b.	the market in equilibrium at 8,000 pounds per year.
c.	that the market is not in equilibrium, and that the quantity supplied is greater than the quantity demanded.
d.	that the market is not in equilibrium, and that the quantity demanded is greater than the quantity supplied.

ANS: D PTS: 1

Refer to Figure 5-1. At a market price of $4, there exists a:

a.	shortage equal to 4,000 pounds of butter.
b.	surplus equal to 4,000 pounds of butter.
c.	shortage equal to 7,000 pounds of butter.
d.	surplus equal to 7,000 pounds of butter.
e.	market equilibrium.

ANS: B PTS: 1

Refer to Figure 5-1. At a market price of $1, there exists a:

a.	shortage equal to 5,000 pounds of butter.
b.	surplus equal to 5,000 pounds of butter.
c.	shortage equal to 11,000 pounds of butter.
d.	surplus equal to 11,000 pounds of butter.
e.	market equilibrium.

ANS: C PTS: 1

Refer to Figure 5-1. If a price floor of $4 is imposed, __________ units of butter will be sold.

a.	7,000
b.	5,000
c.	4,000
d.	3,000
e.	2,000

ANS: D PTS: 1

Refer to Figure 5-1. If a price ceiling of $2 is imposed, __________ units of butter will be sold.

a.	8,000
b.	5,000
c.	4,000
d.	3,000
e.	2,000

ANS: D PTS: 1

Refer to Figure 5-1. If a price ceiling of $4 is imposed, we would expect that __________ units of butter will be sold.

a.	7,000
b.	5,000
c.	4,000
d.	3,000
e.	2,000

ANS: B PTS: 1

Evaluate the following statement: “Prices fall, demand increases as a result, and then prices rise.”

a.	The statement would be correct if “supply” were substituted for the word “demand.”
b.	The statement would be correct if it indicated that prices first rose and then fell.
c.	The statement would be correct if it read “demand decreases” instead of “demand increases.”
d.	The statement is incorrect because it confuses a demand shift with a movement along the demand curve.
e.	The statement is correct as written.

ANS: D PTS: 1

Interpret the following statement: “Demand exceeds the available quantity of apartment housing. If the price of apartment rentals were increased, demand would decrease and an equilibrium could be achieved.”

a.	The statement is correct.
b.	The statement is incorrect because the price should be decreased, not increased, in order to achieve equilibrium.
c.	The statement would be correct if it read “supply would decrease” in response to a price increase.
d.	The statement is incorrect because it confuses “demand” with “quantity demanded.”
e.	The statement would be correct only if the terms “demand” and “supply” were interchanged.

ANS: D PTS: 1

Interpret the following statement: “An increase in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market.”

a.	The statement is correct.
b.	The statement would be correct if “quantity of wheat demanded” were substituted for “quantity of wheat supplied.”
c.	The statement is incorrect because it confuses a change in quantity supplied with a change in supply.
d.	The statement would be correct if it read that a “decrease in the price of wheat will encourage farmers to increase the quantity of wheat supplied to the market.”

ANS: A PTS: 1

Figure 5-2

Refer to Figure 5-2. The movement from __________ is consistent with a decrease in demand.

a.	Point B to Point D
b.	Point D to Point B
c.	Point D to Point C
d.	Point C to Point D
e.	None of the above are correct.

ANS: C PTS: 1

Refer to Figure 5-2. A decrease in the quantity demanded, but not a decrease in demand, occurs when the equilibrium moves from:

a.	Point B to Point D.
b.	Point D to Point B.
c.	Point D to Point C.
d.	Point C to Point D.
e.	None of the above are correct.

ANS: B PTS: 1

Refer to Figure 5-2. The movement from __________ is consistent with an increase in supply.

a.	Point B to Point D
b.	Point D to Point B
c.	Point D to Point C
d.	Point C to Point D
e.	None of the above are correct.

ANS: A PTS: 1

Refer to Figure 5-2. An increase in the quantity supplied, but not an increase in supply, occurs when the equilibrium moves from:

a.	Point B to Point D.
b.	Point D to Point B.
c.	Point D to Point C.
d.	Point C to Point D.
e.	None of the above are correct.

ANS: D PTS: 1

Refer to Figure 5-2. A movement from S₁ to S₂ could occur if:

a.	there is an increase in the price of submarine sandwiches.
b.	there is an increase in the price of potato chips, a complement to submarine sandwiches.
c.	there is a reduction in the price of sliced beef used to make submarine sandwiches.
d.	there is an increase in the price of wheat bread used to make submarine sandwiches.
e.	consumer tastes change, leading many consumers to choose pizza over submarine sandwiches.

ANS: C PTS: 1

Refer to Figure 5-2. A movement from D₁ to D₂ could occur if:

a.	there is a decrease in the income of consumers and submarine sandwiches are inferior goods.
b.	there is an increase in the income of consumers and submarine sandwiches are inferior goods.
c.	the wages of submarine sandwich makers decrease.
d.	the price of bread, used to make submarine sandwiches, increases.
e.	the price of submarine sandwiches falls, leading to a shift of the demand curve to the left.

ANS: B PTS: 1

Goods A (an inferior good) and Goods B (a normal good) are viewed by consumers to be substitute products. Suppose that the price of Good B falls at the same time that consumer income increases. The net effect of these two events on equilibrium in the market for Good A is a(n):

a.	increase in both the equilibrium price and quantity.
b.	decrease in both the equilibrium price and quantity.
c.	increase in equilibrium quantity and an indeterminate effect on price.
d.	indeterminate effect on quantity but an increase in price.
e.	indeterminate effect on both price and quantity.

ANS: B PTS: 1 NOT: Revised

At the current market price for milk, the quantity of milk that sellers are willing and able to sell falls short of the quantity that buyers are willing and able to purchase. In this situation:

a.	the current market price must exceed the equilibrium price.
b.	the current market price must be less than the equilibrium price.
c.	the current market price must be equal to the equilibrium price.
d.	a surplus of milk results.
e.	there will be downward pressure on price.

ANS: B PTS: 1

Suppose vans and sport utility vehicles are viewed by consumers to be substitutes. A safety report is released that contends that sport utility vehicles are prone to roll over during crashes. At the same time, the price of steel (used to produce motor vehicles) increases. The net effect of these two incidents on the market for sport utility vehicles is a(n):

a.	decrease in price and an increase in equilibrium quantity.
b.	decrease in price and a decrease in equilibrium quantity.
c.	increase in price and a decrease in equilibrium quantity.
d.	indeterminate change in price and a decrease in equilibrium quantity.
e.	decrease in price and an indeterminate change in equilibrium quantity.

ANS: D PTS: 1

Wool and cotton can both be used to manufacture clothing in the garment industry. Suppose that bad weather destroys cotton crops at the same time that the price of wool increases significantly. The impact on the market for cotton is likely to be a(n):

a.	increase in the equilibrium price and a decrease in the quantity sold.
b.	increase in both the equilibrium price and the quantity sold.
c.	decrease in both the equilibrium price and the quantity sold.
d.	decrease in the equilibrium price and an increase in the quantity sold.
e.	uncertain effect on the equilibrium quantity but an increase in the equilibrium price.

ANS: E PTS: 1

If the price of ice cream increases substantially (ceteris paribus), the equilibrium quantity of hot fudge sauce is likely to:

a.	increase, and the equilibrium price is likely to decrease.
b.	increase, and the equilibrium price is likely to increase.
c.	decrease, and the equilibrium price is likely to decrease.
d.	decrease, and the equilibrium price is likely to increase.
e.	decrease, while the impact on equilibrium price is uncertain.

ANS: C PTS: 1

A major grocery store chain switches from bagging groceries in paper sacks to bagging them in plastic bags. The grocery chain demands more plastic bags than are available at the current market price. As a result:

a.	the market price for paper sacks is likely to increase.
b.	the market price for plastic bags is likely to increase.
c.	there is an excess supply of plastic bags at the current market price.
d.	there is an excess demand for plastic bags at the current market price.
e.	both b. and d. apply.

ANS: E PTS: 1

Cold weather in the midwestern and eastern United States increases the popularity of vacations in sunny California. At the same time, the hotel employees’ union in California negotiates a significant pay increase for its members. The likely impact on the hotel market in California is:

a.	an increase in the price of hotel rooms and an increase in hotel room rentals.
b.	an increase in the price of hotel rooms and a decrease in hotel room rentals.
c.	an uncertain effect on the price of hotel rooms, but an increase in the quantity of hotel rooms rented.
d.	an increase in the price of hotel rooms, but an uncertain effect on the quantity of hotel rooms rented.
e.	no change. The two events counteract each other, keeping price and quantity stable.

ANS: D PTS: 1

After a cruise ship is hijacked at sea by terrorists, fearful consumers seek to take their vacations on land. At the same time, cruise employees demand and receive higher wages. The effect on the market for cruise vacations is:

a.	an increase in both the equilibrium price and quantity of cruise vacations.
b.	an increase in the equilibrium price of cruise vacations, but an uncertain effect on the quantity of cruise vacations purchased.
c.	an increase in the equilibrium price and a decrease in the equilibrium quantity of cruise vacations purchased.
d.	an uncertain impact on the equilibrium price and a decrease in the quantity of cruise vacations purchased.
e.	a decrease in both the equilibrium price and quantity of cruise vacations purchased.

ANS: D PTS: 1

A more efficient process for refining oil into gasoline is developed. As a result, the market price of gasoline:

a.	and the quantity of gasoline purchased both increase.
b.	increases and the quantity of gasoline purchased falls.
c.	decreases and the quantity of gasoline purchased rises.
d.	decreases and the demand curve for gasoline shifts to the right.
e.	and the quantity of gasoline purchased both decrease.

ANS: C PTS: 1

Table 5-3

Use the following information about demand and supply schedules to answer the question.

Price	D₁	D₂	S₁	S₂
$12	5	9	19	14
$10	8	12	17	12
$ 8	11	15	15	10
$ 6	13	18	13	8
$ 4	16	21	11	6
$ 2	18	24	9	4

Refer to Table 5-3. If D₁ and S₁ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are __________ and __________, respectively.

a.	$8; 15
b.	$6; 13
c.	$4; 16
d.	$4; 11
e.	None of the above are correct.

ANS: B PTS: 1

Refer to Table 5-3. If D₂ and S₂ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are __________ and __________, respectively.

a.	$12; 12
b.	$10; 12
c.	$8; 15
d.	$6; 18
e.	None of the above.

ANS: B PTS: 1

Refer to Table 5-3. If D₁ and S₂ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are __________ and __________, respectively.

a.	$12; 9
b.	$10; 12
c.	$10; 8
d.	$8; 11
e.	between $8 and $10; between 10 and 12

ANS: E PTS: 1

Refer to Table 5-3. If D₂ and S₁ represent the demand and supply schedules in a particular market, the equilibrium price and quantity are __________ and __________, respectively.

a.	$12; 10
b.	$12; 9
c.	$10; 17
d.	$8; 15
e.	$6; 13

ANS: D PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₁ are the prevailing demand and supply curves for a product. If the demand schedule changes from D₁ to D₂, then:

a.	equilibrium price decreases from $6 to $4.
b.	equilibrium quantity decreases from 15 to 13.
c.	equilibrium quantity increases from 13 to 18.
d.	equilibrium price increases from $6 to $8.
e.	equilibrium quantity remains at 13.

ANS: D PTS: 1

Refer to Table 5-3. Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product. If the demand schedule changes from D₂ to D₁, then:

a.	equilibrium price decreases from $6 to $4.
b.	equilibrium quantity decreases from 15 to 13.
c.	equilibrium quantity increases from 13 to 18.
d.	equilibrium price increases from $6 to $8.
e.	equilibrium quantity decreases from 13 to 12.

ANS: B PTS: 1

Refer to Table 5-3. Suppose that D₂ and S₁ are the prevailing demand and supply curves for a product. If the supply schedule changes from S₁ to S₂, then:

a.	equilibrium price decreases from $10 to $8.
b.	equilibrium quantity decreases from 15 to 12.
c.	equilibrium quantity increases from 10 to 12.
d.	equilibrium price increases from $10 to $12.
e.	equilibrium quantity remains at 15.

ANS: B PTS: 1 NOT: Revised answer

Refer to Table 5-3. Suppose the demand schedule for Good A changes from D₁ to D₂ because the price of a related good, Good B, increases. We can say:

a.	that Good B is likely a complement to Good A.
b.	that Good B is likely a substitute for Good A.
c.	that Good B is likely inferior to Good A.
d.	that Good B is not related to Good A.

ANS: B PTS: 1 NOT: Revised

Refer to Table 5-3. Suppose the demand schedule for Good A changes from D₁ to D₂ because the price of a related good, Good B, decreases. We can say:

a.	that Good B is likely a complement to Good A.
b.	that Good B is likely a substitute for Good A.
c.	that Good B is likely inferior to Good A.
d.	that Good B is not related to Good A.

ANS: A PTS: 1 NOT: Revised

Refer to Table 5-3. Suppose the supply schedule for Good A changes from S₁ to S₂ because the price of Good B increases. We can say that:

a.	Goods A and B are likely substitutes in production.
b.	Goods A and B are likely complements in consumption.
c.	Goods A and B are likely substitutes in consumption.
d.	Good B is not related to Good A.

ANS: A PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $4:

a.	a 5 unit shortage will result.
b.	a 5 unit surplus will result.
c.	a 10 unit surplus will result.
d.	a 10 unit shortage will result.
e.	all production of Product A will cease.

ANS: D PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $6:

a.	producers will be unable to sell all the units that they desire to at that price.
b.	consumers will be able to purchase as many units as desired at that price.
c.	equilibrium will be achieved.
d.	only 8 units of output will be traded.
e.	both a. and b. are correct.

ANS: D PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price ceiling of $10:

a.	a shortage of 4 units will result.
b.	a surplus of 4 units will result.
c.	a surplus of 10 units will result.
d.	a shortage of 10 units will result.
e.	the ceiling will have no impact on the quantity of Product A traded.

ANS: E PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price floor of $6:

a.	a shortage of 5 units results.
b.	a surplus of 5 units results.
c.	a shortage of 10 units results.
d.	a surplus of 10 units results.
e.	the floor will have no impact on the quantity of Product A traded.

ANS: E PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for product A. If the government imposes a price floor of $12:

a.	a shortage of 3 units results.
b.	a surplus of 3 units results.
c.	a shortage of 9 units results.
d.	a surplus of 9 units results.
e.	the floor will have no impact on the quantity of Product A traded.

ANS: D PTS: 1

Refer to Table 5-3. Suppose that D₁ and S₂ are the demand and supply schedules for Product A. If the government imposes a price floor of $10:

a.	producers will be able to sell all the units that they desire to at that price.
b.	consumers will be able to purchase as many units as desired at that price.
c.	12 units of output will be traded.
d.	a shortage of 4 units will result.
e.	both a. and d. occur.

ANS: B PTS: 1

What will tend to happen in the market for ballet performances after the lighting and stage technician union wins a 17 percent wage increase for its members?

a.	Ticket prices will rise and the number of performances will increase.
b.	Ticket prices will rise and the number of performances will decline.
c.	Ticket prices will fall and the number of performances will decline.
d.	Ticket prices will fall and the number of performances will increase.

ANS: B PTS: 1

Medical authorities announced in the late 1980s that an acne medicine named Retin-A also had previously unknown wrinkle-reducing properties. An economist would expect to find that, after this announcement, the price of Retin-A __________ and the quantity sold __________.

a.	rose; fell
b.	rose; rose
c.	fell; fell
d.	fell; rose

ANS: B PTS: 1

If in one period the supply curve is located vertically above its position in an earlier period, then we would have an example of a(n):

a.	supply increase.
b.	supply decrease.
c.	decrease in demand.
d.	increase in demand.

ANS: B PTS: 1

A shift in the supply curve of bicycles resulting from higher steel prices will lead to:

a.	higher prices of bicycles.
b.	lower prices of bicycles.
c.	a shift in the demand curve for bicycles.
d.	a larger output of bicycles.
e.	no change in the price of bicycles.

ANS: A PTS: 1

The invention of machinery that can double the amount of gold extracted from raw ore will likely lead mining companies to:

a.	raise the world price of gold to pay for the new machinery.
b.	lower the world price of gold because any given amount can now be produced more cheaply.
c.	raise the world price of gold because miners’ wages must double as their productivity doubles.
d.	lower the world price of gold only if new mining companies are not allowed to enter the industry.

ANS: B PTS: 1

Pork from pigs can be used to produce bacon or sausage, but not both. If the price of bacon rises for some reason, then, everything else equal:

a.	the price of sausage will rise.
b.	the price of sausage will fall.
c.	the resources used to raise pigs will become less expensive.
d.	the demand for bacon will decrease.

ANS: A PTS: 1

In January, 2,500 quarts of ice cream are sold in Boston at $2 per quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in the price and quantity sold of ice cream may have been caused by:

a.	a reduction in wages in the Boston area.
b.	the introduction of labor-saving, automated ice cream packing machinery.
c.	the release of a medical study showing that ice cream consumption improves mental health.
d.	the decision by Boston ice cream sellers to eliminate discount coupons.

ANS: C PTS: 1

Which of the following could be responsible for an increase in the price of wheat?

a.	an increase in the supply of wheat
b.	an increase in the demand for wheat
c.	a decrease in the demand for wheat
d.	a simultaneous increase in supply and decrease in demand for wheat

ANS: B PTS: 1

Nick is delighted to see that the price of his favorite food, black olives, has fallen. Which of the following could be responsible?

a.	an increase in the demand for black olives
b.	a decrease in the supply of black olives
c.	a simultaneous increase in demand and decrease in supply of black olives
d.	a simultaneous decrease in demand and increase in supply of black olives

ANS: D PTS: 1

When the demand and supply of grapes both increase at the same time, we can safely predict that the:

a.	price of grapes will fall.
b.	price of grapes will rise.
c.	quantity of grapes bought and sold will fall.
d.	quantity of grapes bought and sold will rise.

ANS: D PTS: 1

If the price of beepers rose after simultaneous decreases in supply and demand for beeper services, we know that the:

a.	supply curve for beepers shifted more than the demand curve.
b.	demand curve for beepers shifted more than the supply curve.
c.	supply and demand curves shifted by the same amount.
d.	supply and demand curves shifted to the right.

ANS: A PTS: 1

If both the supply and demand curves shift to the left, then we can conclude that there will be a(n):

a.	increase in the equilibrium quantity sold.
b.	decrease in the equilibrium quantity sold.
c.	increase in the equilibrium price.
d.	decrease in the equilibrium price.
e.	a change in quantity that is indeterminate.

ANS: B PTS: 1

If American consumers decided to boycott grapes to protest working conditions of farm workers, everything else being equal, the:

a.	price of grapes will rise.
b.	supply of grapes will fall.
c.	quantity of grapes supplied will fall.
d.	demand curve for grapes shifts to the right.

ANS: C PTS: 1

American consumers decide to boycott soccer balls made by Nike in support of a ban on child labor. Everything else being equal, the:

a.	price of Nike soccer balls will rise.
b.	supply of Nike soccer balls will fall.
c.	quantity of Nike soccer balls supplied will fall.
d.	demand curve for Nike soccer balls shifts to the right.

ANS: C PTS: 1

There is an increase in demand for personal computers at the same time their input costs fall. We would expect that:

a.	price will fall, but the effect on quantity sold is uncertain.
b.	the quantity sold will decline, but the effect on price is uncertain.
c.	the quantity sold will increase, but the effect on price is uncertain.
d.	price will rise, but the effect on quantity sold is uncertain.

ANS: C PTS: 1

Technological progress increases the efficiency of mass producing HDTV-capable television sets. At the same time, more cable and television networks begin broadcasting in HDTV format, increasing the appeal of HDTV-capable television sets. On the basis of this information, what can be said about conditions in the HDTV market?

a.	The equilibrium quantity and price of HDTV-capable sets will increase.
b.	The equilibrium quantity of HDTV-capable sets will increase and price will decrease.
c.	The equilibrium quantity of HDTV-capable sets will increase and what happens to price is indeterminate.
d.	The equilibrium quantity of HDTV-capable sets will decrease and price will increase.
e.	The equilibrium quantity and price of HDTV-capable sets will decrease.

ANS: C PTS: 1

If we observe both an increase in the price of flour and in the number of units sold, this could be explained by:

a.	an increase in the demand for flour.
b.	a decrease in the expected future price of flour.
c.	a decrease in the supply of flour.
d.	an increase in the supply of flour.

ANS: A PTS: 1

A flood damages many homes and farms in the Midwest. Shortly thereafter, the price of plywood rises significantly. The events suggest that:

a.	a decrease in the supply of plywood caused the price of plywood to rise.
b.	an increase in the supply of plywood caused the price of plywood to rise.
c.	a decrease in the demand for plywood caused the price of plywood to rise.
d.	an increase in the demand for plywood caused the price of plywood to rise.

ANS: D PTS: 1

There is an increase in both consumer income and in the price of jet fuel, an important resource used to produce air travel. If air travel is a normal good, how will these changes influence the price and quantity purchased of air travel? The price of air travel will (be) __________ and quantity purchased will (be) __________.

a.	indeterminate; decrease
b.	increase; indeterminate
c.	decrease; indeterminate
d.	indeterminate; increase

ANS: B PTS: 1

Suppose there is a reduction in consumer income and an increase in the price of jet fuel, an important resource used to produce air travel. If air travel is a normal good, how will these changes influence the price and quantity of air travel? The price of air travel will (be) __________ and quantity purchased will (be) __________.

a.	decrease; indeterminate
b.	increase; indeterminate
c.	decrease; decrease
d.	indeterminate; decrease

ANS: D PTS: 1

If both the supply and demand for computer games increase, then the equilibrium price of the games:

a.	is indeterminate and the equilibrium quantity rises.
b.	is indeterminate and the equilibrium quantity falls.
c.	falls and the equilibrium quantity also falls.
d.	falls and the change in equilibrium quantity is indeterminate.

ANS: A PTS: 1

Ceteris paribus, if the market supply of a product increases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	increase; decrease
b.	decrease; increase
c.	increase; increase
d.	decrease; indeterminate
e.	indeterminate; increase

ANS: A PTS: 1 NOT: Revised-Changed answer option

Ceteris paribus, if the market supply of a product decreases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	increase; increase
b.	decrease; increase
c.	decrease; indeterminate
d.	increase; decrease
e.	indeterminate; increase

ANS: B PTS: 1

Ceteris paribus, if the market demand for a product increases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	increase; indeterminate
b.	decrease; decrease
c.	indeterminate; decrease
d.	increase; increase

ANS: D PTS: 1

If both market demand and supply increase simultaneously, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	indeterminate; decrease
b.	increase; increase
c.	increase; indeterminate
d.	decrease; decrease

ANS: C PTS: 1

If market demand increases and market supply decreases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	indeterminate; decrease
b.	indeterminate; increase
c.	decrease; decrease
d.	increase; increase

ANS: B PTS: 1

Ceteris paribus, if the market demand for a product decreases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	increase; increase
b.	indeterminate; decrease
c.	indeterminate; increase
d.	decrease; decrease

ANS: D PTS: 1

If both market demand and supply decrease simultaneously, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	increase; increase
b.	indeterminate; decrease
c.	decrease; indeterminate
d.	decrease; decrease

ANS: C PTS: 1

If market demand decreases and market supply increases, then equilibrium quantity will (be) __________ and equilibrium price will (be) __________.

a.	indeterminate; decrease
b.	indeterminate; increase
c.	decrease; indeterminate
d.	increase; indeterminate

ANS: A PTS: 1

Figure 5-3

Refer to Figure 5-3. Starting with initial demand curves D₀ and S₀, a movement from __________ is consistent with an increase in both demand and supply.

a.	Point A to Point I
b.	Point A to Point C
c.	Point A to Point F
d.	Point A to Point E
e.	Point A to Point D

ANS: A PTS: 1

Refer to Figure 5-3. Starting with initial demand curves D₀ and S₀, a movement from __________ is consistent with a decrease in both demand and supply.

a.	Point A to Point I
b.	Point A to Point C
c.	Point A to Point F
d.	Point A to Point E
e.	Point A to Point G

ANS: D PTS: 1

Figure 5-4

Refer to Figure 5-4. The movement from __________ to __________ is consistent with a decrease in the price of cotton (a substitute).

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H
e.	Point A; Point C

ANS: D PTS: 1

Refer to Figure 5-4. The movement from __________ to __________ is consistent with a successful advertising campaign that claims wool keeps you warm.

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H
e.	Point A; Point I

ANS: B PTS: 1

Refer to Figure 5-4. The movement from __________ to __________ is consistent with a strike by the Basque Shepherds Guild.

a.	Point A; Point I
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H
e.	Point A; Point C

ANS: C PTS: 1

Refer to Figure 5-4. The movement from __________ to __________ is consistent with technological improvements in wool mills.

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H
e.	Point A; Point I

ANS: E PTS: 1

Refer to Figure 5-4. The movement from __________ to __________ is consistent with an increase in both income and population, assuming that wool products are normal goods.

a.	Point A; Point B
b.	Point A; Point F
c.	Point A; Point D
d.	Point A; Point H
e.	Point A; Point C

ANS: B PTS: 1

Whenever there is a shortage at a particular price, the quantity sold at that price will equal:

a.	the quantity demanded at that price.
b.	the quantity supplied minus the quantity demanded.
c.	the quantity supplied at that price.
d.	(quantity demanded plus quantity supplied)/2.

ANS: C PTS: 1

Whenever there is a surplus at a particular price, the quantity sold at that price will equal:

a.	the quantity demanded at that price.
b.	the quantity supplied minus the quantity demanded.
c.	the quantity supplied at that price.
d.	(quantity demanded plus quantity supplied)/2.

ANS: A PTS: 1

Table 5-4

Price per gallon	Quantity Demanded	Quantity Supplied
of gasoline	(thousands of gallons)	(thousands of gallons)
$5.00	600	1,000
$4.50	700	900
$4.00	800	800
$3.50	950	700
$3.00	1,200	600
$2.50	1,500	500
$2.00	1,800	400
$1.50	2,100	300
$1.00	2,400	200

Refer to Table 5-4. According to the data in the above table, the equilibrium price of gasoline is:

a.	$2.00
b.	$2.50
c.	$3.00
d.	$4.00
e.	$4.50

ANS: D PTS: 1

Refer to Table 5-4. Assuming the market for gasoline is initially in equilibrium, what is likely to happen when there is a significant decrease in the price of sport utility vehicles? (Assume that sport utility vehicles get very low gas mileage.)

a.	The market price and quantity of gasoline will both decrease.
b.	The market price for gasoline will increase and the quantity demanded will decrease.
c.	The market price of gasoline will decrease and the quantity demanded will increase.
d.	Both the market price and quantity of gasoline demanded will increase.
e.	There will be no change in the price of gasoline.

ANS: D PTS: 1

Refer to Table 5-4. If the government imposes a $3 price ceiling:

a.	a 250,000 gallon surplus will result.
b.	a 600,000 gallon surplus will result.
c.	a 250,000 gallon shortage will result.
d.	a 600,000 gallon shortage will result.
e.	quantity demanded will just equal quantity supplied.

ANS: D PTS: 1

Refer to Table 5-4. The government imposes a $4.00 price ceiling at the same time there is a substantial decrease in the price of sport utility vehicles. (Assume that sport utility vehicles get very low mileage per gallon.) As a result, the:

a.	price of gasoline equals $4.00 per gallon and the quantity demanded equals the quantity supplied.
b.	price of gasoline rises above $4.00 per gallon and a surplus of gasoline is created.
c.	price of gasoline will fall below $4.00 per gallon and a shortage of gasoline is created.
d.	legal price of gasoline will equal $4.00 per gallon and a shortage of gasoline is created.
e.	market price and quantity traded of gasoline will both increase.

ANS: D PTS: 1

A surplus will result whenever the:

a.	government imposes a price floor below the equilibrium price.
b.	government imposes a price ceiling below the equilibrium price.
c.	government imposes a price floor above the equilibrium price.
d.	government imposes a price ceiling above the equilibrium price.
e.	quantity demanded exceeds the quantity supplied.

ANS: C PTS: 1

A shortage will result whenever:

a.	the government imposes a price floor below equilibrium price.
b.	the government imposes a price ceiling above equilibrium price.
c.	the government imposes a price floor above equilibrium price.
d.	quantity demanded exceeds quantity supplied at the current price.
e.	both a. and d. occur.

ANS: D PTS: 1

A surplus exists in the market for Barbie dolls at the prevailing price. The surplus will be eliminated by a price:

a.	increase, decreasing the supply and increasing the demand.
b.	decrease, decreasing the supply and increasing the demand.
c.	decrease, increasing the quantity supplied and increasing the quantity demanded.
d.	increase, increasing the quantity supplied and increasing the quantity demanded.
e.	decrease, decreasing the quantity supplied and increasing the quantity demanded.

ANS: E PTS: 1

A shortage exists in the market for corn at the prevailing price. The shortage will be eliminated by a price:

a.	increase, increasing the supply and decreasing the demand.
b.	decrease, increasing the supply and decreasing the demand.
c.	decrease, increasing the quantity supplied and decreasing the quantity demanded.
d.	increase, increasing the quantity supplied and decreasing the quantity demanded.
e.	increase, increasing the supply and decreasing the quantity demanded.

ANS: D PTS: 1

A shortage currently exists in the market for strawberries. Which of the following statements is correct?

a.	The quantity of strawberries supplied exceeds the quantity demanded and the market price is below the equilibrium price.
b.	The quantity of strawberries supplied exceeds the quantity demanded and the market price is above the equilibrium price.
c.	The quantity of strawberries demanded exceeds the quantity supplied and the market price is below the equilibrium price.
d.	The quantity of strawberries demanded exceeds the quantity supplied and the market price is above the equilibrium price.
e.	The quantity of strawberries demanded exceeds the quantity supplied and the market price equals the equilibrium price.

ANS: C PTS: 1

A shortage currently exists in the market for scooters. Which of the following statements is correct?

a.	The current market price is below the equilibrium price.
b.	The current market price is above the equilibrium price.
c.	The quantity demanded of scooters exceeds the quantity supplied at the market price.
d.	Both a. and c. are correct.
e.	Both b. and c. are correct.

ANS: D PTS: 1

A surplus currently exists in the market for apples. Which of the following statements is correct?

a.	The quantity of apples supplied exceeds the quantity demanded and the market price is below the equilibrium price.
b.	The quantity of apples supplied exceeds the quantity demanded and the market price is above the equilibrium price.
c.	The quantity of apples supplied exceeds the quantity demanded and the market price equals the equilibrium price.
d.	The quantity of apples demanded exceeds the quantity supplied and the market price is below the equilibrium price.
e.	The quantity of apples demanded exceeds the quantity supplied and the market price is above the equilibrium price.

ANS: B PTS: 1

A surplus currently exists in the market for video game players. Which of the following statements is correct?

a.	The current market price is below the equilibrium price.
b.	The current market price is above the equilibrium price.
c.	The quantity of video game players demanded exceeds the quantity supplied at the market price.
d.	Both a. and c. are correct.
e.	Both b. and c. are correct.

ANS: B PTS: 1

“In a surplus scenario, as prices fall, consumers buy more, eliminating the surplus and moving the market back to equilibrium.” This statement would be correct if:

a.	prices rise instead of falling.
b.	it is a shortage scenario.
c.	initial market price is below the equilibrium price.
d.	The statement is correct as written.

ANS: D PTS: 1 NOT: NEW Question

If the electronics market is experiencing a shortage in the supply of mobile phones being sold at a cost that buyers are more than willing to pay for, then:

a.	the selling price is higher than the equilibrium price
b.	the equilibrium price is higher than the selling price.
c.	the quantity demanded is less than the quantity supplied.
d.	the shortage could be eliminated by lowering the price.

ANS: B PTS: 1 NOT: NEW Question

Assume a price ceiling is imposed at the current equilibrium price in the market for wheat. If the supply of wheat then decreases as a result of bad weather, then:

a.	a surplus of wheat will be created.
b.	a shortage of wheat will be created.
c.	the quantity of wheat traded remains the same.
d.	the quantity of wheat supplied will increase.
e.	There is insufficient information to answer this question.

ANS: B PTS: 1

Assume a price floor is imposed at the current equilibrium price in the market for lettuce. If the demand for lettuce then increases:

a.	a surplus of lettuce will be created.
b.	a shortage of lettuce will be created.
c.	the quantity of lettuce traded remains the same.
d.	the quantity of lettuce supplied will increase.
e.	the quantity of lettuce supplied will decrease.

ANS: D PTS: 1

Assume a price floor is imposed in the market for milk at the current equilibrium price and that a price ceiling is imposed in the market for natural gas at the current equilibrium price. An increase in demand for both milk and natural gas will create:

a.	surpluses in both the milk and natural gas markets.
b.	shortages in both the milk and natural gas markets.
c.	a surplus in the milk market and a shortage in the natural gas market.
d.	a shortage in the milk market and a surplus in the natural gas market.
e.	a shortage in the natural gas market and increase the quantity traded in the milk market.

ANS: E PTS: 1

The general consensus on minimum wage laws is that they:

a.	do create some unemployment.
b.	affect workers at all skill levels.
c.	lead to extremely low rates of unemployment.
d.	increase employment possibilities for teenagers.

ANS: A PTS: 1 NOT: NEW Question

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:

a.	surpluses in both the wheat and gasoline markets.
b.	shortages in both the wheat and gasoline markets.
c.	a surplus in the wheat market and an increase the quantity of gasoline traded.
d.	a surplus in the wheat market and a shortage in the gasoline market.
e.	a shortage in the wheat market and a surplus in the gasoline market.

ANS: C PTS: 1

Minimum wage laws have little or no effect in this segment.

a.	Low-skilled Labor
b.	Teenagers
c.	Skilled workers
d.	Unemployed workers

ANS: C PTS: 1 NOT: NEW Question

The quantity of a good bought and sold in a market will be below the equilibrium quantity if:

a.	the market price is above the equilibrium price
b.	the market price is either above or below the equilibrium price
c.	the market price is below the equilibrium price
d.	demand or supply is increasing.

ANS: B PTS: 1

Table 5-5

Price Per	Gallons Demanded	Gallons Supplied
Gallon	Per Month	Per Month
$4.00	400	1,400
$3.50	600	1,100
$3.00	800	800
$2.50	1,000	500
$2.00	1,200	200
$1.50	1,400	50
$1.00	1,600	0

Refer to Table 5-5. If the government intervenes in the market for milk and sets a price floor of $3.50, the result is:

a.	a shortage of 500 gallons of milk.
b.	a surplus of 500 gallons of milk.
c.	that some consumers will not be able to buy milk who wish to purchase it at that price.
d.	both a. and c. are correct.

ANS: B PTS: 1

Refer to Table 5-5. If the government were to remove a $3.50 price floor in the milk market, the result would be:

a.	a decrease in price and increase in the quantity of milk supplied.
b.	a decrease in price and increase in the quantity of milk demanded.
c.	an increase in both price and the quantity of milk supplied.
d.	an increase in both price and the quantity of milk demanded.
e.	no change in price, and the quantity of milk supplied would equal the quantity demanded.

ANS: B PTS: 1

Refer to Table 5-5. If the government intervenes in the market for milk and sets a price ceiling of $2.00 per gallon, the result is:

a.	a shortage of exactly 1,200 gallons of milk.
b.	a surplus of exactly 1,000 gallons of milk.
c.	that some consumers will not be able to buy milk at that price.
d.	that some sellers will not be able to sell available milk at that price.
e.	Both a. and c. are correct.

ANS: C PTS: 1

Refer to Table 5-5. If the government were to remove a price ceiling of $2.00 per gallon in the milk market, the result would be:

a.	a decrease in price and increase in the quantity of milk supplied.
b.	a decrease in price and increase in the quantity of milk demanded.
c.	an increase in both price and the quantity of milk supplied.
d.	an increase in both price and the quantity of milk demanded.
e.	the market price of milk would remain constant and the quantity of milk supplied would equal the quantity demanded.

ANS: C PTS: 1

Whenever a price ceiling is imposed in a market, it is true that:

a.	quantity demanded exceeds quantity supplied and a surplus results.
b.	quantity demanded exceeds quantity supplied and a shortage results.
c.	quantity supplied exceeds quantity demanded and a surplus results.
d.	quantity supplied exceeds quantity demanded and a shortage results.
e.	it is necessary to know whether the ceiling is imposed above or below the equilibrium price in order to determine whether the quantity traded will be affected.

ANS: E PTS: 1

Whenever a price floor is imposed above equilibrium price, it is true that:

a.	supply will increase due to a higher price and a surplus will result.
b.	supply will increase due to a higher price until it just equals the quantity demanded.
c.	demand will increase due to a higher price and a shortage will result.
d.	demand will increase due to a higher price until it just equals the quantity supplied.
e.	quantity supplied will exceed the quantity demanded.

ANS: E PTS: 1

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $1.50 per loaf:

a.	the equilibrium price of wheat will fall and a shortage of wheat will be created.
b.	the quantity of wheat supplied will increase.
c.	the quantity of wheat demanded will decrease.
d.	there will be a shortage of bread.
e.	there will be a surplus of bread.

ANS: D PTS: 1

Suppose the equilibrium price of bread is $2.00 per loaf. If the government sets a price ceiling of $2.50 per loaf:

a.	the price of wheat will rise and a shortage is created.
b.	the quantity supplied of wheat will increase.
c.	there will be no change in the quantity of bread demanded or supplied.
d.	there will be a shortage of bread.
e.	there will be a surplus of bread.

ANS: C PTS: 1

Which of the following is not a result of rent controls?

a.	reduced incentives to build new rental housing
b.	reduced incentives for landlords to keep rental units in good repair
c.	increased discrimination against people deemed undesirable on the part of landlords
d.	increased turnover as tenants move more frequently from one rental unit to another

ANS: D PTS: 1

Which of the following is not likely to result from an increase in the federal minimum wage?

a.	an increase in the quantity of low-skilled labor supplied
b.	a decrease in the quantity of low-skilled labor demanded
c.	a decrease in teenage unemployment
d.	an increase in teenage unemployment

ANS: C PTS: 1

The imposition of a price ceiling on a market often results in:

a.	an increase in investment in the industry.
b.	a surplus.
c.	a shortage.
d.	a decrease in discrimination on the part of sellers.
e.	none of the above.

ANS: C PTS: 1

To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

a.	reduction in the volume of sales only if the price is forced down.
b.	reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.
c.	decrease in the volume of sales whether the price is forced up or down.
d.	increase in the volume of sales whether the price is forced up or down.

ANS: C PTS: 1

The major drawback of a price ceiling is:

a.	it causes a surplus.
b.	government regulations of this kind are difficult to enforce.
c.	it causes a shortage.
d.	none of the above; there is no drawback.

ANS: C PTS: 1

If the supply curve for housing has the normal positive slope, rent controls are likely to:

a.	increase the quantity of available housing.
b.	improve the quality of available housing.
c.	create a larger shortage than if the supply curve were vertical.
d.	help low-income families find suitable housing.
e.	increase the demand for housing.

ANS: C PTS: 1

Figure 5-5

Refer to Figure 5-5. The graph portrays the market for gasoline for which a __________ has been imposed, and, as a result, a __________ of gasoline occurs.

a.	price floor; surplus
b.	price ceiling; shortage
c.	price ceiling; surplus
d.	price floor; shortage

ANS: B PTS: 1

Refer to Figure 5-5. At price P_R, a __________ will occur of __________.

a.	surplus; 0Q_D minus 0Q_S
b.	surplus; 0Q_Sminus 0Q_D
c.	shortage; 0Q_Sminus 0Q_D
d.	shortage; 0Q_D minus 0Q_S

ANS: D PTS: 1

Figure 5-6

Refer to Figure 5-6. At a market price of $4, which of following conditions exist?

a.	Shortage
b.	Surplus
c.	Equilibrium
d.	Any of the above

ANS: B PTS: 1 NOT: NEW Question

Refer to Figure 5-6. The equilibrium price is:

a.	$3
b.	$1
c.	$4
d.	Indeterminate

ANS: A PTS: 1 NOT: NEW Question

Refer to Figure 5-6. At a market price of $2, which of following conditions exist?

a.	Shortage
b.	Surplus
c.	Equilibrium
d.	Either a or b

ANS: A PTS: 1 NOT: NEW Question

Assume the following information about the demand and supply curves for good Z:

Demand		Supply
Price	Quantity Demanded	Price	Quantity Supplied
$10	10	$1	10
$9	20	$2	15
$8	30	$3	20
$7	40	$4	25
$6	50	$5	30
$5	60	$6	35
$4	70	$7	40
$3	80	$8	45
$2	90	$9	50
$1	100	$10	55

From the information given above,

a.	If the price was $9, would there be a shortage of 5 units.
b.	If the price was $9, would there be a surplus of 30 units.
c.	If the price was $3, would there be a shortage of 35 units.
d.	If the price was $4, would there be a surplus of 45 units.
e.	None of the above.

ANS: B PTS: 1

If Qs represents quantity willingly supplied at the current price and Qd represents quantity willingly demanded at the current price, which of the following situations would produce a decrease in the price?

a.	Qs = 1000; Qd = 750.
b.	Qs = 750; Qd = 750.
c.	Qs = 750; Qd = 1000.
d.	Qs = 1000; Qd = 1000.
e.	either b. or d.

ANS: A PTS: 1

If Qs represents quantity willingly supplied at the current price and Qd represents quantity willingly demanded at the current price, which of the following situations would produce an increase in quantity traded as the price adjusts?

a.	Qs = 1000; Qd = 750.
b.	Qs = 750; Qd = 750.
c.	Qs = 750; Qd = 1000.
d.	Qs = 1000; Qd = 1000.
e.	either a. or c.

ANS: E PTS: 1

If Qs represents quantity willingly supplied at the current price and Qd represents quantity willingly demanded at the current price, which of the following situations would produce a decrease in the quantity traded as the price adjusts?

a.	Qs = 1000; Qd = 750.
b.	Qs = 750; Qd = 750.
c.	Qs = 750; Qd = 1000.
d.	Qs = 1000; Qd = 1000.
e.	None of the above.

ANS: E PTS: 1

If there is a shortage of a good, we would expect that as a result

a.	fewer resources will be allocated to the production of the good.
b.	the price of the product will rise.
c.	the price of the product will fall.
d.	the supply curve will shift left and the demand curve will shift right, eliminating the shortage.
e.	the supply curve will shift right and the demand curve will shift left, eliminating the shortage.

ANS: B PTS: 1

At the current price of good Y, there is a shortage. As a result, we would expect:

a.	its price to increase, quantity demanded to increase, and quantity supplied to decrease.
b.	its price to increase, quantity demanded to decrease, and quantity supplied to increase.
c.	its price to increase, quantity demanded to increase, and quantity supplied to increase.
d.	its price to decrease, quantity demanded to increase, and quantity supplied to decrease.

ANS: B PTS: 1

Both price and quantity will increase when there is a(n)

a.	increase in demand.
b.	decrease in demand.
c.	increase in supply
d.	decrease in supply.

ANS: A PTS: 1

For quantity exchanged to decrease, but the price to rise, there must have been a(n)

a.	increase in demand.
b.	decrease in demand.
c.	increase in supply
d.	decrease in supply.

ANS: D PTS: 1

An increase in the price of a good could be caused by

a.	An increase in supply.
b.	An increase in demand.
c.	A decrease in supply and an increase in demand.
d.	Either b. or c.

ANS: D PTS: 1

If incomes are rising, in the market for a normal good,

a.	its price will rise and the quantity exchanged will rise.
b.	its price will rise and the quantity exchanged will fall.
c.	its price will fall and the quantity exchanged will rise.
d.	its price will fall and the quantity exchanged will fall.

ANS: A PTS: 1

If you observed that the market price of a good rose, while the quantity exchanged fell, which of the following could have caused the change?

a.	An increase in supply.
b.	A decrease in supply.
c.	An increase in demand.
d.	A decrease in demand.
e.	None of the above could have caused the indicated changes.

ANS: B PTS: 1

If both supply and demand increased, but supply increased more than demand, the result would be

a.	a higher price and a lower equilibrium quantity.
b.	a lower price and a lower equilibrium quantity.
c.	no change in the price and a lower equilibrium quantity.
d.	a higher price and a larger equilibrium quantity.
e.	a lower price and a larger equilibrium quantity.

ANS: E PTS: 1

Assuming that the demand and supply of a good have moved in the same direction, and by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	no change in price and a decrease in quantity exchanged.
e.	no change in price, and an indeterminate change in quantity exchanged.

ANS: E PTS: 1

“Rent Control”, a form of price control in which the government sets a limit to what apartment owners can charge a tenant, is a mechanism of:

a.	cost cutting.
b.	price ceiling.
c.	price floor.
d.	non-equilibrium pricing.

ANS: B PTS: 1 NOT: NEW Question

If nuts and bolts are complements, an increase in the price of nuts caused by a change in the supply of nuts will:

a.	increase the number of bolts sold.
b.	decrease the number of nuts sold.
c.	increase the price of bolts.
d.	decrease the number of bolts sold
e.	do both b. and d.

ANS: E PTS: 1

Which of the following combinations of changes would tend to both decrease the quantity of a good traded and increase the price?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	A decrease in supply.

ANS: D PTS: 1

Ceteris paribus, we can expect that a per unit subsidy of $2 per unit for a product would:

a.	increase the quantity exchanged.
b.	reduce its price to consumers.
c.	increase its supply.
d.	do all of the above.

ANS: D PTS: 1

Which of the following is false?

a.	If demand decreases and supply increases, the equilibrium price will rise.
b.	If supply decreases and demand remains the same, the equilibrium price will rise.
c.	if supply increases and demand decreases, the equilibrium price will fall.
d.	if demand increases and supply decreases, the equilibrium price will rise.

ANS: A PTS: 1

A leftward shift of the demand curve results in:

a.	increase in equilibrium price.
b.	increase in quantity.
c.	decrease in both equilibrium price and quantity.
d.	decrease in quantity and an indeterminate equilibrium price.

ANS: C PTS: 1 NOT: NEW Question

If the supply of a product decreases by more than the demand increases:

a.	the price will rise and the quantity traded will fall.
b.	the price will rise, but the quantity traded could either rise or fall.
c.	the price will fall, but the quantity traded could either rise or fall.
d.	the quantity traded will rise, but the price could either rise or fall.
e.	the quantity traded will fall, but the price could either rise or fall.

ANS: A PTS: 1

An increase in the price of a close substitute for good A will:

a.	increase demand, increase price and increase the quantity exchanged.
b.	increase demand, increase price and decrease the quantity exchanged.
c.	increase supply, increase price and increase the quantity exchanged.
d.	decrease demand, decrease price and decrease the quantity exchanged.
e.	do none of the above.

ANS: A PTS: 1

An increase in the price of inputs used to produce good A will:

a.	increase supply, increase price and increase the quantity exchanged.
b.	increase demand, increase price and increase the quantity exchanged.
c.	decrease supply, increase price and decrease the quantity exchanged.
d.	decrease supply, decrease price and decrease the quantity exchanged.
e.	do none of the above.

ANS: C PTS: 1

We can be sure that the equilibrium price will fall when:

a.	supply and demand both increase.
b.	supply and demand both decrease.
c.	supply increases and demand decreases.
d.	supply decreases and demand increases.

ANS: C PTS: 1

If the price of gadgets falls and gadgets and widgets are substitutes, we would expect:

a.	The quantity of gadgets demanded to increase and the demand for widgets to increase.
b.	The quantity of widgets demanded to decrease and the demand for gadgets to increase.
c.	The quantity of gadgets demanded to increase and the demand for widgets to decrease.
d.	The quantity of widgets demanded to decrease and the demand for gadgets to decrease.

ANS: C PTS: 1

Which of the following could not cause an increase in both the equilibrium price and quantity of a good exchanged?

a.	Increased input prices.
b.	Decreased incomes for an inferior good.
c.	An increase in the price of a substitute good.
d.	Increased tastes for the good.
e.	Any of the above could explain an increase in both the equilibrium price and quantity of a good exchanged.

ANS: A PTS: 1

A ban on the use of the technology used by most producers in an industry is likely to result in:

a.	higher prices and a higher quantity exchanged in the industry.
b.	higher prices and a lower quantity exchanged in the industry.
c.	higher prices and a higher quantity exchanged in the industry.
d.	lower prices and a lower quantity exchanged in the industry.

ANS: B PTS: 1

Which of the following would cause a decrease in both the price and quantity of a good exchanged?

a.	A strike by production workers in the industry.
b.	A subsidy to the industry from the government.
c.	A decrease in advertising expenditures by the industry.
d.	A decrease in the price of a complement good.
e.	None of the above would cause a decrease in both the price and quantity of a good exchanged.

ANS: C PTS: 1

If tastes for a good increased and the price of a substitute good decreased at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	smaller quantities to be exchanged.
e.	we would not know which direction either prices or quantities exchanged would be altered without more information.

ANS: E PTS: 1

If consumers expected the price of a good to increase in the near future and the price of a complement good decreased at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	smaller quantities to be exchanged.
e.	both prices and quantities exchanged would increase.

ANS: E PTS: 1

If input prices rose and production technology improved at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	smaller quantities to be exchanged.
e.	we would not know which direction either prices or quantities exchanged would be altered without more information.

ANS: E PTS: 1

If the prices of productive substitute goods decreased and productive technology improved at the same time, as a result:

a.	prices would rise.
b.	prices would fall.
c.	larger quantities to be exchanged.
d.	smaller quantities to be exchanged.
e.	prices to fall and larger quantities to be exchanged.

ANS: E PTS: 1

Which of the following is likely to result in a higher equilibrium price?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.
e.	None of the above.

ANS: C PTS: 1

Which of the following is likely to result in a lower equilibrium price?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.
e.	None of the above.

ANS: D PTS: 1

Which of the following is likely to result in a larger equilibrium quantity exchanged?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.
e.	None of the above.

ANS: A PTS: 1

Which of the following is likely to result in a smaller equilibrium quantity exchanged?

a.	An increase in both demand and supply.
b.	A decrease in both demand and supply.
c.	An increase in demand and a decrease in supply.
d.	A decrease in demand and an increase in supply.
e.	None of the above.

ANS: B PTS: 1

An increase in demand for a product and a reduction in the costs of production would:

a.	cause a persistent shortage of the product.
b.	encourage firms to exit the industry.
c.	increase profits.
d.	encourage firms to enter the industry.
e.	both increase profits and encourage firms to enter the industry.

ANS: E PTS: 1

Assuming that the demand and supply of a good have moved in opposite directions, but by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	no change in price and a decrease in quantity exchanged.
e.	an indeterminate change in price, but no change in quantity exchanged.

ANS: E PTS: 1

Assuming that the demand and supply of a good have moved in the same direction, and by the same amount, the new equilibrium would represent:

a.	an increase in price and an increase in quantity exchanged.
b.	no change in price and an increase in quantity exchanged.
c.	a decrease in price and a decrease in quantity exchanged.
d.	no change in price and a decrease in quantity exchanged.
e.	no change in price, and an indeterminate change in quantity exchanged.

ANS: E PTS: 1

Starting from an equilibrium position,

a.	the imposition of a price floor below the equilibrium price will increase the quantity demanded.
b.	the imposition of a price floor below the equilibrium price will decrease the quantity exchanged.
c.	the imposition of a price floor above the equilibrium price will decrease the quantity demanded.
d.	the imposition of a price floor above the equilibrium price will increase the quantity exchanged.
e.	c. and d. are true.

ANS: C PTS: 1

Which of the following is not a supply curve determinant?

a.	Government policies.
b.	Changes in technology.
c.	Consumer population.
d.	Changes in price of inputs.

ANS: C PTS: 1 NOT: NEW Question

If there is a surplus, __________ will be frustrated by their inability to exchange at the current price, and they will compete the prices __________ as a result.

a.	buyers; up.
b.	buyers; down.
c.	sellers; up.
d.	sellers; down.

ANS: D PTS: 1

If the equilibrium price of widgets is $22, and then a price ceiling of $24 is imposed by the government, as a result,

a.	there will be no effect on the widget market.
b.	there will be a shortage of widgets.
c.	there will be a surplus of widgets.
d.	the price of widgets will increase.

ANS: A PTS: 1

Which of the below is true?

a.	A price ceiling reduces the quantity exchanged on the market, but a price floor increases the quantity exchanged on the market.
b.	A price ceiling increases the quantity exchanged on the market, but a price floor decreases the quantity exchanged on the market.
c.	Both price floors and price ceilings reduce the quantity exchanged in the market.
d.	Both price floors and price ceilings increase the quantity exchanged in the market.

ANS: C PTS: 1

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet. That price ceiling is then lowered to $2 per thousand cubic feet. As a result,

a.	the shortage of natural gas will get worse.
b.	the shortage of natural gas will get less severe.
c.	the surplus of natural gas will get worse.
d.	the surplus of natural gas will get less severe.
e.	the shortage of natural gas will be eliminated.

ANS: A PTS: 1

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price floor imposed at $7 per thousand cubic feet. That price floor is then lowered to $5 per thousand cubic feet. As a result,

a.	the shortage of natural gas will get worse.
b.	the shortage of natural gas will get less severe.
c.	the surplus of natural gas will get worse.
d.	the surplus of natural gas will get less severe.
e.	the surplus of natural gas will be eliminated.

ANS: E PTS: 1

Which of the following is true?

a.	It is possible to eliminate a surplus by raising a price floor sufficiently.
b.	It is possible to create a surplus by raising a price ceiling sufficiently.
c.	It is possible to eliminate a shortage by raising a price ceiling sufficiently.
d.	It is possible to create a shortage by lowering a price floor sufficiently.
e.	All of the above are true.

ANS: C PTS: 1

Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	A decrease in supply.
e.	None of the above; there is no surplus.

ANS: E PTS: 1

A government mandated price increase for doodads will:

a.	decrease the quantity of doodads supplied but increase the quantity of doodads demanded.
b.	increase the quantity of doodads supplied but decrease the quantity of doodads demanded.
c.	increase the demand for doodads and decrease the supply of doodads.
d.	decrease the demand for doodads and increase the supply of doodads.

ANS: B PTS: 1

If the government wanted to reduce the quantity of a good traded, it could do so by:

a.	setting a price ceiling for the good below the equilibrium price.
b.	setting a price floor for the good above the equilibrium price.
c.	tax the good more heavily.
d.	tax an input used intensively in the industry more heavily.
e.	doing any of the above.

ANS: E PTS: 1

A decrease in the current minimum wage would:

a.	decrease employment for low skill workers.
b.	increase firm’s demand curves for low skill workers.
c.	increase the supply of low skill workers.
d.	decrease the incomes of some low skill workers.
e.	do none of the above.

ANS: D PTS: 1

Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the shortage?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	A decrease in supply.
e.	Either b. or c.

ANS: E PTS: 1

Assume there is a price floor imposed on a good which is above the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	Any of the above.
e.	Either b. or c.

ANS: A PTS: 1

Assume there is a price ceiling imposed on a good which is below the equilibrium price. Which of the following changes would reduce the size of the surplus?

a.	An increase in demand.
b.	A decrease in demand.
c.	An increase in supply.
d.	A decrease in supply.
e.	None of the above; there is no surplus.

ANS: E PTS: 1

An increase in both equilibrium price and quantity is a consequence of:

a.	increase in supply.
b.	decrease in demand.
c.	increase in both demand and supply.
d.	increase in demand.

ANS: C PTS: 1 NOT: NEW Question

If the price of apples rises and the quantity of apples exchanged decreases, then we know that there cannot have been a:

a.	decrease in supply with no change in demand
b.	large decrease in supply and a small decrease in demand
c.	large decrease in supply and a small increase in demand
d.	large increase in demand and a small increase in supply

ANS: D PTS: 1

The supply curve for apples shifts to the left. The result will be:

a.	a shift in the supply curve of pears
b.	a movement down the demand curve for apples
c.	a movement up the supply curve for pears
d.	a shift in the demand curve for pears

ANS: D PTS: 1

SHORT ANSWER

Markets tend toward equilibrium and, as a result, will tend to eliminate shortages and surpluses. Why?

ANS:

Markets tend toward equilibrium because when a shortage exists, consumers who are unhappy about not being able to purchase the products or services they want will tend to bid the prices higher, moving the market toward equilibrium. If a surplus exists, suppliers are unhappy about not being able to sell the quantity of goods or services they wish, and will tend to lower prices in order to persuade consumers to purchase more goods and services.

PTS: 1

Serious natural disasters like hurricanes and tornadoes cause widespread and extensive damage to buildings. As a result of a natural disaster, what would you expect to happen in the market for building supplies?

ANS:

As homes and buildings are being reconstructed, the demand for building supplies will increase significantly. The increase in demand causes a movement along the supply curve, resulting in an increased quantity of building supplies traded. Prices will rise precipitously if supply is highly inelastic.

PTS: 1

Beach resorts raise their prices during the summer months and yet more people book rooms at those times. Is this a violation of the law of demand?

ANS:

No. During summer months, the demand for beach resort accommodations tends to increase, pushing up both prices and occupancy for the duration. An increase in demand (a shift of the curve. occurs. This does not violate the law of demand, which states that there is an inverse relationship between price and quantity demanded, all other things being equal.

PTS: 1

How does the equilibrium quantity change when there is an increase in supply and a decrease in demand?

ANS:

The impact on equilibrium quantity is indeterminate because the increase in supply increases the equilibrium quantity and the decrease in demand decreases it. The change in the equilibrium quantity will vary depending on the relative changes in supply and demand. If the decrease in demand is greater than the increase in supply, the equilibrium quantity will decrease. If the increase in supply is greater than the decrease in demand, the equilibrium quantity will increase.

PTS: 1 NOT: NEW Question

Explain how both sales and long lines prior to store openings are characteristic of markets in disequilibrium.

ANS:

One function of sales is to reduce the price of products and bring markets with current excess supply into equilibrium. If the quantity of a product demanded exceeds the quantity supplied at the current market price, goods may be allocated to consumers on a first-come, first-served basis. Standing in line is one way to allocate goods, which also increases the opportunity cost of buying the goods.

PTS: 1

Prices have soared for parking facilities in downtown Dallas in recent months. Pressure from voters has convinced the Dallas City Council to impose a price ceiling of $5 on all parking garages and lots per day. What effect will this likely have on the market for parking spaces in Dallas? Who will gain? Who will lose?

ANS:

The $5 price ceiling will likely result in a shortage of parking spaces. At the new lower prices, quantity demanded will increase. More people will wish to park downtown, and both the parking lots/garage owners and the consumers who can’t find spaces to park in will lose. Owners will lose revenue and in some cases shut down lots and garages. Consumers who can find a space without much added time spent searching may initially be better off, but will most likely spend more time searching for a space. Some will find no space at all.

PTS: 1

In an attempt to reduce poaching of elephant ivory tusks, officials in Kenya burned illegally gathered ivory. Using your understanding of shifts in supply and demand, will this turn out to be a helpful or hurtful move on the Kenyan government’s part?

ANS:

The burning of the ivory causes the supply curve of ivory to shift to the left, thereby increasing the price of ivory in the marketplace. This policy may have the opposite effect from the one intended. Higher ivory prices will likely induce more poaching to occur by making it more profitable.

PTS: 1

In high schools, all teachers are paid the same based on years of experience, regardless of specialization. Beginning in the 1970s, a shortage of science and math teachers developed as private industry paid more for math and science skills than schools could offer. At the same time, a decline in the number of school-age children reduced the demand for all other teachers, which led to a surplus. An economist might suggest what sort of solution for both the resulting shortage and surplus?

ANS:

Raise the wages of teachers in fields that are in short supply and decrease the wages of teachers in fields that have a surplus of individuals.

PTS: 1

Explain the impact of:
A rent ceiling set below the equilibrium price.
A price floor set above the equilibrium price.

ANS:

A rent ceiling set below the equilibrium price results in a persistent shortage. A price floor set above the equilibrium price will result in a surplus.

PTS: 1 NOT: NEW Question

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