Question 1

Suppose that supply decreases and demand increases. What is the MOST likely effect on price and quantity?

Accepted Answer

When supply decreases and demand increases, the price is likely to increase due to the increased demand and reduced supply. However, the effect on quantity is not clear as it depends on the degree of the shift in supply and demand. If the increase in demand is significantly greater than the decrease in supply, then the equilibrium quantity will increase. However, if the decrease in supply is greater than the increase in demand, then the equilibrium quantity will decrease. Thus, price will increase, but quantity may increase, decrease, or stay the same.

Question 2

The cost of sensors used in making radio frequency identification (RFID) chips falls, while a successful ad campaign makes using "tap" technology in credit card usage more fashionable. As a result, the equilibrium price of RFID chips _____, and the equilibrium quantity _____.

Accepted Answer

The cost of sensors falling leads to a decrease in production costs, potentially lowering prices, while increased demand from a successful ad campaign could raise prices, making the price change uncertain. However, both factors lead to an increase in the equilibrium quantity of RFID chips.

Question 3

It is certain that the equilibrium quantity will fall when:

Accepted Answer

When both the supply and demand curves shift to the left, it indicates a decrease in both supply and demand, leading to a lower equilibrium quantity.

Question 4

Suppose there is a surplus of qualified architects in the United States. Over time, we would expect:

Accepted Answer

A surplus in the supply of qualified architects means there are more architects than there are available jobs, leading to increased competition and potential wage decreases.

Question 5

(Figure: Supply, Demand, and Equilibrium) Use Figure: Supply, Demand, and Equilibrium. In the market illustrated in the figure,

Accepted Answer

The point where the supply and demand curves intersect is the equilibrium point. In the given figure, P2 is the price at which demand and supply are equal (i.e., the equilibrium price), and Q2 is the quantity exchanged (i.e., the equilibrium quantity). Therefore, choice A is correct. Choice B is incorrect because P3 and Q1 do not represent the point of equilibrium. Choice C is incorrect because there is no information given about the actual quantity supplied or demanded. Choice D is incorrect because a rise in price would not shift the demand curve but would rather move along the given demand curve.

Question 6

Suppose a technological improvement lowers the cost of producing guava candy. At the same time, preferences for guava candy decrease. The equilibrium quantity of guava candy will:

Accepted Answer

The equilibrium quantity of guava candy could increase, decrease, or remain the same, depending on the relative magnitudes of the shifts in the demand and supply curves. A technological improvement (lowering production costs) would shift the supply curve to the right, potentially increasing the quantity supplied. However, a decrease in preferences for guava candy would shift the demand curve to the left, potentially decreasing the quantity demanded. The net effect on the equilibrium quantity depends on which effect is stronger.

Question 7

Suppose we observe an increase in both the price of ping pong tables and the quantity of ping pong tables bought and sold. Which statement would explain this observation?

Accepted Answer

An increase in both price and quantity suggests a rightward shift in the demand curve, indicating an increase in demand for ping pong tables.

Question 8

Consider the market for online video streaming services (Netflix, Apple TV, Amazon Prime, HULU, to name a few). Which statement would cause the equilibrium price of online streaming services to rise with certainty?

Accepted Answer

An increase in demand combined with a decrease in supply would cause the equilibrium price to rise with certainty as there would be more consumers wanting the service while the supply of the service is shrinking. This would create a shortage in the market, driving prices up.

Question 9

Why do many stores have big after-Christmas sales of their left-over Christmas merchandise?

Accepted Answer

The answer of Why do many stores have big after-Christmas...

Question 10

In Kansas, the price of corn is always lowest in the summer. This may seem odd, since consumers really enjoy eating corn in the summer. What could explain the low price?

Accepted Answer

The answer of In Kansas, the price of corn is...

Question 11

In August 2005, Hurricane Katrina damaged or destroyed a significant portion of the oil production capacity in the Gulf of Mexico. The winter of 2006 was unusually cold in many of the southern states. How did these events affect the market for natural gas?

Accepted Answer

The answer of In August 2005, Hurricane Katrina damaged or...

Quiz 4: Equilibrium: Where Supply Meets Demand