Supply, Demand, and Equilibrium

The demand function for product X is given by Qd = 1600 -30P -0.5M +40PR, where P refers to the price of X, M refers to money income, and PR refers to the price of related good R. We can conclude that *a. product X is an inferior good b. product X is a normal good c. product R is a complementary good for product X d. the demand for product X is perfectly elastic The supply schedule of a product is given by Qs = 10P 40. Find the price if the quantity supplied is 20. a. P=2 b. P=4 *c. P=6 d. P=8 Referring to the question above, find the quantity supplied if the price is $50. a. Qs = 380 *b. Qs = 460 c. Qs = 510 d. Qs = 640 The demand schedule of a product is given by Qd = 220 5P. Find the quantity demanded if the price is $20. a. Qd = 90 b. Qd = 110 *c. Qd = 120 d. Qd = 140 Referring to the question above, find the price if the quantity demanded is 20. *a. P = 40 b. P = 50 c. P = 60 d. P = 70 Equilibrium in supply and demand analysis occurs when quantity supplied equals quantity demanded. If Qs= -5 + 3P and Qd= 10 2P, equilibrium price equals _____ and quantity equals _____: *a. P = 3, Q = 4 b. P = 2, Q = 3 c. P = 4, Q = 3 d. P = 1, Q = 2 Referring to the question above, suppose that the government sets a price floor on the product at $4. This would result in a a. shortage of 8 units of output b. shortage of 6 units of output c.* surplus of 5 units of output

d.

surplus of 3 units of output

If Qs = -45 + 8P and Qd = 125 2P, what is the equilibrium price and quantity? a. P = 24, Q = 12 *b. P = 17, Q = 91 c. P = 32, Q = 28 d. P = 19, Q = 16 Referring to the question above, suppose that the government sets a price ceiling on the product at $10. This would result in a a. shortage of 40 units of output b.* shortage of 70 units of output c. surplus of 50 units of output d. surplus of 60 units of output Suppose that the equation of a demand schedule is P = 100 2Qd and the equation of a supply schedule is P = 3Qs. The equilibrium price and quantity are a. P = 20, Q = 40 b. P = 30, Q = 55 *c. P = 60, Q = 20 d. P = 65, Q = 35 Suppose that the equation of a demand schedule is P = 100 -2Qd and the equation of a supply schedule is P = 25 + 3Qs. The equilibrium price and quantity are a.* P = 70, Q = 15 b. P = 45, Q = 25 c. P = 25, Q = 35 d. P = 80, Q = 30 Suppose that the equation of a demand schedule is P = 100 2Qd and the equation of a supply schedule is P = 24 + 3Qs. If the government imposes a price ceiling on the product at $60, a. The market will be in equilibrium, where Qs = Qd b. A surplus of 20 units of output will occur c. A shortage of 15 units of output will occur d.* A shortage of 8 units of output will occur In drawing an individuals demand curve for a commodity, all but which one of the following are kept constant? a. The individuals money income b. Prices of other commodities *c. The price of the commodity under consideration d. The tastes of the individual A fall in the price of a commodity, holding everything else constant, results in: a. An increase in demand b. A decrease in demand *c. An increase in the quantity demanded d. A decrease in the quantity demanded

When Marks money income rises (while everything else remains the same), his demand curve for a normal good: *a. Rises b. Falls c. Remains the same d. Any of the above When Joes money income falls (while everything else remains the same), his demand curve for an inferior good: *a. Increases b. Decreases c. Remains unchanged d. Cannot say without additional information When the price of a substitute of commodity X falls, the demand curve for X: a. Increases *b. Decreases c. Remains unchanged d. Any of the above When both the price of a substitute and the price of a complement of commodity X rise, the demand curve for X: a. Increases b. Decreases c. Remains unchanged *d. All of the above are possible In drawing a farmers supply curve for a commodity, all but which one of the following are kept constant? a. Technology b. The supplies of inputs c. Features of nature such as climate and weather conditions *d. The price of the commodity under consideration If the supply curve of a commodity is positively sloped, a rise in the price of the commodity, ceteris paribus, results in: a. An increase in supply *b. An increase in the quantity supplied c. A decrease in supply d. A decrease in the quantity supplied

If, from a position of equilibrium, the market supply of commodity decreases while the market demand remains unchanged a. The equilibrium price falls b. The equilibrium quantity rises c. Both the equilibrium price and the equilibrium quantity decrease *d. The equilibrium price rises but the equilibrium quantity falls The law of demand suggests that:

a. b. *c. d.

Px and Qx are not related Px and Qx are directly related Px and Qx are inversely related None of the above

The price of good A falls; this will alter the equilibrium consumption of related-good B by: a. Shifting his demand curve for good A *b Shifting his demand curve for good B c. Altering his preferences for good A and good B d. Causing his budget line to shift upward and rightward with no changes in slope. Use the figure below to answer the next four questions.

A movement from equilibrium at point a to equilibrium at point b is caused by: a. A decrease in demand *b. An increase in demand c. A decrease in supply d. An increase in supply e. Shifts in both supply and demand A movement from equilibrium at point c to equilibrium at point b is caused by: a. A decrease in demand b. An increase in demand c. A decrease in supply *d. An increase in supply e. Shifts in both supply and demand A movement from equilibrium at point b to equilibrium at point d is caused by: *a. A decrease in demand and a decrease in supply b. An increase in demand and a decrease in supply c. An increase in demand and an increase in supply d. A decrease in demand and an increase in supply e. A change in demand only A movement from equilibrium at point a to equilibrium at point c is caused by: a. A decrease in demand and a decrease in supply *b. An increase in demand and a decrease in supply c. An increase in demand and an increase in supply d. A decrease in demand and an increase in supply

e.

A change in demand only

The next two questions are to be answered using the following hypothetical information.
Amount of X which consumers want to purchase per week Price Amount of X which producers want to sell per week

8 10 12 14 16

$5 $4 $3 $2 $1

16 14 12 10 8

How many units of would be traded per week if the market were in equilibrium? a. 8 d. 14 b. 10 e. 16 *c. 12 Which of the following would result from a law stating product X could not be sold at a price higher than $2? a. Consumers could be able to buy more X than if the price were at the equilibrium level. b. Producers would not be able to sell all that they wish to sell at the $2 price *c. There would be a shortage of X in that consumers would wish to buy more than producers would be willing to sell. d. There would be a surplus in that producers would wish to sell more than consumers would be willing to buy. e. Demand would decrease. If the price of wine is above its equilibrium level: a. There is a shortage of wine. *b. There is a surplus of wine. c. Wine is being sold on a black market. d. The demand for wine equals the supply of wine. e. The quantity of wine demanded equals the quantity supplied If two goods are complementary, an increase in the price of one of the goods will cause: a. A decrease in the quantity demanded of the other b. An increase in the quantity demanded of the other *c. A decrease in the demand for the other d. An increase in the demand for the other e. A decrease in the supply of the other If two goods are substitutes for one another, an increase in the price of one of the goods will cause: a. A decrease in the quantity demanded of the other b. An increase in the quantity demanded of the other c. A decrease in the demand for the other *d. An increase in the demand for the other e. A decrease in the supply of the other An increase in the cost of materials needed in the production of pencils will a. Decrease both the demand curve and the supply curve of pencils.

b. c. *d. e.

Decrease the demand curve and increase the supply curve of the pencils Increase the demand curve and decrease the supply curve of pencils Decrease the supply curve of pencils and leave the demand curve unchanged Increase the supply curve of pencils and leave the demand curve unchanged

The price at which the quantity demanded equals the quantity supplied is called the: a. Price ceiling b. Price floor c. Price Support d. Market Price *e. Equilibrium price Assume that the supply curve for medical services slopes upward to the right. What is likely to happen to the cost of medical services if the government were to undertake a program of paying a portion of the cost of medical services for all persons in the United States? *a. It would increase since the governments program would increase demand for medical services. b. It would decrease since the governments programs would increase supply of medical services. c. It would remain the same since the governments program would increase both demand for and supply of medical services. d. It would decrease since the governments program would decrease demand for medical services. e. It would increase since the governments program would decrease supply of medical services. An increase in both the demand and supply curves will: *a. Increase the equilibrium quantity, but the equilibrium price may rise or fall b. Increase the equilibrium quantity and decrease the equilibrium price c. Increase both the equilibrium quantity and price d. Increase the equilibrium price, but the equilibrium quantity may rise or fall e. Decrease both the equilibrium quantity and price Which of the following is likely to cause an increase in the supply of beef? a. A rise in the price of beef *b. A decrease in the price of cattle feed c. An increase in the wages of farm laborers d. A decrease in the price of raw hides e. A decrease in the price of beef Concerning beer, what is likely to happen to the price and quantity sold per month if a certain state government raises the exercise tax on beer from $.25 to $.50 per gallon? a. Price and quantity will both rise b. Price and quantity will both fall *c. Price will rise but quantity will fall d. Price will fall but quantity will rise e. Price and quantity will remain the same Which of the following are least likely to be complementary pairs of goods? a. Gasoline and automobiles b. A blouse and a skirt c. Coffee and cream *d. Milk and root beer

All of the following are assumed constant in constructing a demand curve except that: *a. Buyers are not influenced by price changes b. Buyers incomes remain unchanged c. Prices of other products remain unchanged d. The desirability of the good is independent of its market price e. Prices are expected to remain at present levels It the actual price is above the equilibrium price, quantity demanded will be: a. Greater than quantity supplied, causing a surplus. b. Greater than quantity supplied, causing a shortage. *c. Less than quantity supplied, causing a surplus. d. Less than quantity supplied, causing a shortage. If goods A and B are substitutes for consumers, a decrease in the price of B will cause the demand curve for A to: a. Increase and thus increase its price b. Increase and thus decrease its price c. Decrease and thus increase its price *d. Decrease and thus decrease its price If good B is an inferior good, an increase in money incomes of consumers will cause the demand curve for the good to: a. Increase and thus increase its price b. Increase and thus decrease its price c. Decrease and thus increase its price *d. Decrease and thus decrease its price If consumers expect the price of good A to increase in the near future, we should expect the current demand for the good to: *a. Increase and increase its price b. Increase and decrease its price c. Decrease and increase its price d. Decrease and decrease its price A decrease in the price of inputs that are used to produce good A will cause the supply curve of A to: a. Increase and increase its price *b. Increase and decrease its price c. Decrease and increase its price d. Decrease and decrease its price An improvement in the technology of producing good A will cause the supply of A to: a. Increase and increase its price *b. Increase and decrease its price c. Decrease and increase its price d. Decrease and decrease its price The increase in quantity exchanged at the same price can result from: *a. An increase in both demand and supply b. A decrease in both demand and supply

c. d.

An increase in demand and decrease in supply A decrease in demand and increase in supply

An increase in price at the same quantity can result from: a. An increase in both demand and supply b. A decrease in both demand and supply *c. An increase in demand and decrease in supply d. A decrease in demand and increase in supply Price ceilings set below the equilibrium price: a. Tend to be used during times of high unemployment. b. Cause surpluses *c. Cause shortages d. Cause consumers and producers to act in a manner that is most desirable from the standpoint of society Price supports set above the equilibrium price: a. Cause shortages *b. Cause surpluses c. Result in black market activities d. Prevent inflation If the price is used as the main rationing and allocating device, a good that becomes scarce and highpriced causes consumers to: a. Increase consumption, and producers to increase production b. Increase consumption, and producers to decrease production *c. Decrease consumption, and producers to increase production d. Decrease consumption, and producers to decrease production In the short run, a sudden decrease in supply will cause: a. Price to increase a small amount but quantity to decrease a large amount compared to the long run. b. Price to increase a small amount and quantity to decrease a small amount compared to the long run. *c. Price to increase a large amount and quantity to decrease a small amount compared to the long run. d. Price to increase a large amount and quantity to decrease a large amount compared to the long run. Which of the following statements best describes price elasticity of demand? a. The percentage change in quantity resulting from a one-dollar change in price. b. The percentage change in price resulting from a one-unit change in quantity. *c. The percentage change in quantity resulting from a 1 percent change in price. d. The percent change in price resulting from a 1 percent change in quantity. A decrease in demand means that consumers: a. Will buy less at a given price. b. Will pay a lower price for a given quantity c. Will buy more at a higher price *d. A and B

Which of the following circumstances would cause an increase in the demand for a good? *a. A decrease in the price of a complement b. A decrease in the price of a substitute c. An increase in income if the item is an inferior good d. More than one of the above If good A is an inferior good, a decrease in money incomes of consumers will have what effect on the demand for A? *a. Increase b. Decrease c. No effect d. Decrease only if good A is a substitute for some other good An increase in the price of a good accompanied by a decrease in the quantity sold would result from: a. An increase in demand b. A decrease in demand c. An increase in supply *d. A decrease in supply e. An increase in demand accompanied by an increase in supply An increase in income will: a. Increase the demand for all goods. *b. Increase the demand for normal goods and decrease the demand for inferior goods c. Increase the demand for normal goods and leave the demand for inferior goods unchanged. d. Increase the demand for inferior goods and decrease the demand for normal goods. e. Decrease the demand for inferior goods and leave the demand for normal goods unchanged. Which of the following will not cause a change in the demand for a good? a. A change in the price of substitute goods. b. A change in the price of complementary goods. c. A change in income. *d. A change in the price of the good. e. A change in tastes If peas and beans are substitutes, an increase in the price of peas will: a. Decrease the quantity of beans demanded. *b. Increase the price of beans and the quantity sold. c. Increase the price of beans and decrease the quantity sold. d. Increase the quantity of beans sold and leave the price of beans the same. e. Not affect the market for beans. If the market for cauliflower is in equilibrium and the price of fertilizer used in its cultivation rises: *a. The price of cauliflower will increase, and the quantity sold will decrease. b. The price of cauliflower will increase, and the quantity sold will increase. c. The quantity of cauliflower supplied will increase. d. The supply of cauliflower will increase. e. The supply of cauliflower will increase as will the quantity of cauliflower supplied. If the demand for hamburger increases:

a. b. *c. d. e.

The quantity of ketchup demanded will probably decrease. The price of ketchup will probably rise, and the quantity sold will probably fall. The price of ketchup will probably rise, and the quantity sold will probably rise. The supply of hamburger will increase. The supply of hamburger and of ketchup will probably increase.

If a market price is above the equilibrium price: a. The price will fall, demand will increase, and supply will decrease. b. The price will fall, demand will decrease, and supply will increase. *c. The price will fall, the quantity demanded will increase, and the quantity supplied will decrease. d. The price will fall, the quantity demanded will decrease, and the quantity supplied will decrease. e. Demand will decrease and supply will increase so that the market price will become an equilibrium price. If the government imposes a price floor on a product, it may also have to: a. Impost rationing to allocate the product. b. Take action to reduce demand c. Take action to increase supply *d. Buy the surplus product If we observe that over a period of time the quantity of a product sold increases and the price also increases, one possibly explanation is that: a. Supply increase over the period, while demand remained the same. b. Supply increase over the period, while demand fell. *c. Demand increased over the period, while supply remained the same. d. Supply decrease over the period, while demand remained the same. e. Supply and demand decreased over the period Which of the following would not shift the supply curve of commodity? *a. A change in its price. b. A change in the price of a related good in production. c. A change in resource prices. d. A change in expectations about future prices. e. An improvement in technology. The equilibrium price admits to the market: a. Only those buyers whose demand price is at or about the equilibrium price and only those sellers who supply price is at or above the equilibrium price. *b. Only those buyers whose demand price is at or above the equilibrium price and only those sellers whose supply price is at or below the equilibrium price. c. Only those buyers whose demand price is at or below the equilibrium price and only those sellers whose supply price is at or below the equilibrium price. d. Only those buyers whose demand price is at or below the equilibrium price and only those sellers whose supply price is at or about the equilibrium price. e. All buyers and sellers. In a competitive market the portion of an excise tax borne by a buyer is equal to: *a. The amount the price of the product rises as a result of the tax b. The amount of the tax c. The amount of the tax less the amount the price of the product rises as a result of the tax

d.

The amount of the tax plus the amount the price of the product rises as a result of the tax.

An increase in demand and a decrease in supply will: a. Increase price and increase the quantity exchanged b. Decrease price and decrease the quantity exchanged *c. Increase price and the effect upon quantity exchanged will be indeterminate d. Decrease price and the effect upon quantity exchanged will be indeterminate. An increase in supply and an increase in demand will: a. Increase price and increase the quantity exchanged b. Decrease price and increase the quantity exchanged c. Affect price in an indeterminate way and decrease the quantity exchanged *d. Affect price in an indeterminate way and increase the quantity exchanged Which of the following could not cause increase in the supply curve of cotton? *a. An increase in the price of cotton b. Improvements in the art of production cotton c. A decrease in the price of machinery and tools employed in cotton production d. A decrease in the price of corn The law of supply states that as price increases: a. Supply increases b. Supply decreases *c. Quantity supplied increases d. Quantity supplied decreases