Supply and Demand

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) According to the Law of Demand, the demand curve for a good will A) shift leftward when the price of the good increases. B) shift rightward when the price of the good increases. C) slope downward. D) slope upward. ) As the price of a good increases, the change in the !uantity demanded can "e shown "y A) shifting the demand curve leftward. B) shifting the demand curve rightward. C) moving down along the same demand curve. D) moving up along the same demand curve. #) $f the price of automo"iles were to increase su"stantially, the demand curve for gasoline would most li%ely A) shift leftward. B) shift rightward. C) "ecome flatter. D) "ecome steeper. &) $f the price of automo"iles were to decrease su"stantially, the demand curve for pu"lic transportation would most li%ely A) shift rightward. B) shift leftward. C) remain unchanged. D) remain unchanged while !uantity demanded would change. ') An increase in the demand curve for orange (uice would "e illustrated as a A) leftward shift of the demand curve. B) rightward shift of the demand curve. C) movement up along the demand curve. D) movement down along the demand curve. )) *he term +inverse demand curve, refers to A) a demand curve that slopes upward. B) e-pressing the demand curve in terms of price as a function of !uantity. C) the demand for +inverses., D) the difference "etween !uantity demanded and supplied at each price. .) $f the demand for oranges is written as / 0 111 2 'p, then the inverse demand function is A) / 0 'p 2 111. B) / 0 1 2 . p. C) p 0 1 2 '/. D) p 0 1 2 . /.

3) $f government regulations prohi"it the production of a particular good, the demand curve for that good will most li%ely A) shift leftward. B) shift rightward. C) remain unchanged. D) disappear. 4) Suppose the demand curve for a good shifts rightward, causing the e!uili"rium price to increase. *his increase in the price of the good results in A) a rightward shift of the supply curve. B) an increase in !uantity supplied. C) a leftward shift of the supply curve. D) a leftward movement along the supply curve. 11) Suppose there are 111 identical firms in the rag industry, and each firm is willing to supply 11 rags at any price. *he mar%et supply curve will "e a5n) A) vertical line where / 0 11. B) vertical line where / 0 111. C) vertical line where / 0 1111. D) hori6ontal line where / 0 1111. 11) *he e-pression +increase in !uantity supplied, is illustrated graphically as a A) leftward shift in the supply curve. B) rightward shift in the supply curve. C) movement up along the supply curve. D) movement down along the supply curve. 1 ) $f the supply curve of a product changes so that sellers are now willing to sell given price, the supply curve will A) shift leftward "y units. B) shift rightward "y units. C) shift vertically up "y units. D) shift vertically down "y units. 1#) *he mar%et supply curve is found "y A) hori6ontally summing all individual supply curves. B) vertically summing all individual supply curves. C) 7ither A or B a"ove since they "oth give the same answer. D) 8one of the a"ove. 1&) *echnological innovations in the production of computers has led to A) a decrease in the !uantity demanded for computers. B) a rightward shift of the supply curve for computers. C) a decrease in the !uantity supplied of computers. D) 8one of the a"ove. 1') 7!uili"rium is defined as a situation in which A) neither "uyers nor sellers want to change their "ehavior. B) no government regulations e-ist. C) demand curves are perfectly hori6ontal. D) suppliers will supply any amount that "uyers wish to "uy. additional units at any

1)) A competitive e!uili"rium is descri"ed "y A) a price only. B) a !uantity only. C) the e-cess supply minus the e-cess demand. D) a price and a !uantity. Figure 2.1

1.) 9igure .1 shows a graph of the mar%et for pi66as in a large town. 8o pi66as will "e supplied unless the price is "elow A) :1. B) :'. C) :1 . D) :1&. 13) 9igure .1 shows a graph of the mar%et for pi66as in a large town. 8o pi66as will "e demanded unless price is high than A) :1. B) :'. C) :1 . D) :1&. 14) 9igure .1 shows a graph of the mar%et for pi66as in a large town. At a price of :1&, there will "e A) no pi66as supplied. B) e!uili"rium. C) e-cess supply. D) e-cess demand. 1) 9igure .1 shows a graph of the mar%et for pi66as in a large town. At a price of :', there will "e A) e-cess demand. B) e-cess supply. C) e!uili"rium. D) 6ero demand. 1) 9igure .1 shows a graph of the mar%et for pi66as in a large town. ;hat are the e!uili"rium price and !uantity< A) p 0 3, / 0 )1 B) p 0 )1, / 0 3

C) p 0 1&, / 0 1&1 D) p 0 ', / 0 )1 ) 9igure .1 shows a graph of a mar%et for pi66as in a large town. At a price of :., what is the amount of e-cess demand< A) 1= there is e-cess supply at :.. B) 1 units C) #1 units D) 11 units #) 9igure .1 shows a graph of a mar%et for pi66as in a large town. At a price of :11, the mar%et A) is not in e!uili"rium. B) has e-cess supply. C) does not have e-cess demand. D) All of the a"ove. &) 9igure .1 shows a graph of the mar%et for pi66as in a large town. Suppose that concern over dietary ha"its has led the government to impose a restriction that limits suppliers to produce no more than &1 pi66as. ;hat will the price of pi66a "e as a result of this !uota< A) : B) :. C) :3 D) :11 ') 9igure .1 shows a graph of the mar%et for pi66as in a large town. Suppose that concern over dietary ha"its has led the government to impose a restriction that limits suppliers to produce only &1 pi66as. As a result, for prices greater than :., the A) supply curve is unchanged. B) supply curve is vertical. C) demand curve "ecomes vertical. D) demand curve "ecomes hori6ontal. )) $f a government2imposed price ceiling causes the o"served price in a mar%et to "e "elow the e!uili"rium price, A) there will "e e-cess demand. B) there will "e e-cess supply. C) the curves will shift to ma%e a new e!uili"rium at the regulated price. D) 8one of the a"ove.

PROBLEMS
1) Suppose the market for potatoes can be expressed as follows: Supply: QS = 2! " 1!p #emand: Q# = $!! 2!p Solve for the e!uili"rium price and !uantity.

) Suppose the market for potatoes can be expressed as follows: Supply: QS = 2! " 1!p

#emand: Q# = $!! 2!p $f the government sets a ma-imum price of :11 per unit, what will "e the !uantity demanded and !uantity supplied< .

%. &onsider a perfectly competiti'e market with market supply Q s = + P and market demand Q d = #1 P . Suppose the go'ernment imposes an excise tax of ($ per unit on this market.

1. ;hat is the e!uili"rium price and !uantity traded after imposition of the ta-< . Calculate total amount of ta-. #. >ow much money will pay consumers and producers

&. &onsider a market with in'erse market supply P = ' + #Q s and in'erse market demand

P = '1 Q d .
Suppose the go'ernment subsidi)es this market with a subsidy of (* per unit. 1. ;hat is the e!uili"rium price and !uantity traded after imposition of the su"sidy< . Calculate total amount of su"sidy. #. >ow much money will receive consumers and producers<