Question 1

On a supply-and-demand diagram,equilibrium is found

Accepted Answer

Equilibrium is found at the point where the demand and supply curves intersect, indicating the point where the quantity demanded and supplied are equal and there is no surplus or shortage.

Question 2

Oil producers expect that oil prices next year will be higher than oil prices this year.As a result,oil producers are most likely to

Accepted Answer

Oil producers will likely hold off some oil from the market this year in anticipation of higher prices next year. This will shift the present supply curve of oil leftward, decreasing the quantity supplied at the current prices. This strategy allows them to sell their oil at a higher price in the future when prices are expected to be higher.

Question 3

At a price below the equilibrium price,there is

Accepted Answer

At a price below the equilibrium price, the quantity demanded by buyers exceeds the quantity supplied by sellers, resulting in a shortage.

Question 4

Suppose that for a given good,demand decreases and supply decreases at the same time.If demand decreases by a greater amount than supply decreases,then equilibrium price __________ and equilibrium quantity __________ for that good.

Accepted Answer

When demand decreases more than supply decreases, the equilibrium price falls because the lower demand reduces the willingness to pay for the good. The equilibrium quantity also falls because both the decrease in demand and supply contribute to fewer transactions.

Question 5

The fundamental reason why most supply curves are upward sloping is that

Accepted Answer

The law of increasing opportunity cost states that as more of a good is produced, the opportunity cost of each additional unit increases. This means that suppliers must receive a higher price to cover their increasing costs and to be willing to supply more of the good. Therefore, the supply curve slopes upward to reflect this relationship between price and quantity supplied. Choices A and B do not explain the fundamental reason why supply curves are upward sloping, and Choice C is not always true as a higher price can reduce quantity supplied in certain circumstances, such as for goods with readily available substitutes.

Question 6

At a price for which quantity demanded exceeds quantity supplied,a __________ is experienced,which pushes the price __________ toward its equilibrium value.

Accepted Answer

When quantity demanded exceeds quantity supplied, a shortage is experienced. This situation puts upward pressure on prices as consumers are willing to pay more to obtain the goods they desire, moving the price toward its equilibrium value where quantity demanded equals quantity supplied.

Question 7

Suppose that for a given good demand increases and supply decreases at the same time.If demand increases by a lesser amount than supply decreases,then equilibrium price __________ and equilibrium quantity __________ for that good.

Accepted Answer

When demand increases and supply decreases, the equilibrium price will rise due to increased competition among buyers and reduced availability of the good. The equilibrium quantity will fall because the decrease in supply, being greater than the increase in demand, leads to fewer transactions.

Question 8

Resource X is necessary to the production of good Y.If the price of resource X rises,

Accepted Answer

When the price of resource X rises, the cost of producing good Y increases. As a result, firms may reduce their output or even exit the market, leading to a decrease in the supply of Y. Therefore, the supply curve of Y shifts leftward.

Question 9

Oil producers expect that oil prices next year will be lower than oil prices this year.As a result,oil producers are most likely to

Accepted Answer

If oil producers expect lower prices next year, they are likely to sell more oil this year to take advantage of the higher current prices, which would shift the present supply curve of oil rightward. This is because increasing the amount of oil placed on the market increases the supply, which is represented by a rightward shift in the supply curve.

Question 10

On a supply-and-demand diagram,quantity demanded equals quantity supplied

Accepted Answer

At the single equilibrium price, quantity demanded and quantity supplied are equal, which means that there is no excess demand or supply, and the market is in a state of equilibrium. At any other price, there will either be excess demand or excess supply, which will create a pressure for the price to adjust to the equilibrium level. Therefore, only at the equilibrium price will the quantity demanded equal the quantity supplied.

Question 11

On a supply-and-demand diagram,consider a price for which the horizontal distance to the supply curve is shorter than the horizontal distance to the demand curve.There is a __________ at that price and the current price must be __________ the equilibrium price.

Accepted Answer

When the horizontal distance to the supply curve is shorter than to the demand curve, it means at that price, the quantity supplied is less than the quantity demanded, indicating a shortage. This situation occurs when the current price is below the equilibrium price, as at the equilibrium price, quantity supplied equals quantity demanded.

Question 12

Suppose that for a given good demand increases and supply increases at the same time.If demand increases by a lesser amount than supply increases,then equilibrium price __________ and equilibrium quantity __________ for that good.

Accepted Answer

When both demand and supply increase, but supply increases by a larger amount than demand, the equilibrium price tends to fall due to the greater increase in supply compared to demand, and the equilibrium quantity rises because both demand and supply have increased.

Question 13

Which of the following will not shift a supply curve?

Accepted Answer

A change in the good's own price will not shift the supply curve, but rather will lead to a movement along the existing supply curve (known as a change in quantity supplied). The other choices listed (A, C, and D) will all shift the supply curve.

Question 14

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount,what can we say about the resulting changes in equilibrium price and quantity?

Accepted Answer

When both the supply and demand curves shift to the left by an equal amount, the equilibrium quantity will decrease because there is less supply and less demand. The equilibrium price remains unchanged because the shifts in supply and demand are equal, offsetting each other's effect on price.

Question 15

On a supply-and-demand diagram,consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve.There is a __________ at that price and the current price must be __________ the equilibrium price.

Accepted Answer

When the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve, it means that at that price, quantity supplied is greater than quantity demanded, indicating a surplus. Since there is more supply than demand, the current price must be above the equilibrium price, where supply equals demand.

Question 16

An advance in technology in the production of good X causes

Accepted Answer

An advance in technology in the production of good X would lead to a decrease in the cost of production, leading firms to be able to produce more of the good at any given price. This results in an increase in supply, causing a rightward shift in the supply curve for good X.

Question 17

At a price above the equilibrium price,there is

Accepted Answer

At a price above the equilibrium price, the quantity supplied exceeds the quantity demanded, leading to a surplus of the product in the market.

Question 18

Suppose the government decides that every family should own its own home.To bring this about,the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build.As a result of this,

Accepted Answer

By providing a subsidy for home-construction, the government is giving an incentive for builders to produce more homes. This will result in a rightward shift in the supply curve of new houses as builders will be willing and able to produce and sell more homes at each given price. The demand curve for homes may or may not shift, depending on whether or not every family can afford to buy a home even with the subsidy in place.

Question 19

If the workers of a firm successfully negotiate an increase in wages,which of the following is most likely to happen?

Accepted Answer

An increase in wages raises the production costs for the firm. This typically makes it more expensive for the firm to produce the same quantity of goods, leading to a decrease in the supply of the product. As a result, the supply curve shifts leftward, indicating a decrease in supply at each price level.

Question 20

Suppose that good X is one of the more heavily subsidized industries in the United States.Suppose further that as a result of intense lobbying from health-related concerns,Congress repeals the subsidies on good X.Which of the following scenarios would likely occur?

Accepted Answer

When subsidies are repealed, the cost of production increases, making it more expensive for producers to produce each level of output. This would cause a leftward shift in the supply curve for good X, as producers would be willing to supply less of good X at each price level.

Quiz 3: Supply and Demand: Theory