Question 1

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?

Accepted Answer

The answer of Suppose market demand and supply are given...

Question 2

The maximum legal price that can be charged in a market is:

Accepted Answer

The maximum legal price that can be charged in a market is called a price ceiling. A price ceiling is a government-imposed limit on the price of a good or service. It is below the market equilibrium price and is intended to make the good or service more affordable for consumers. Therefore, the correct option is D.

Question 3

An inferior good is a good

Accepted Answer

An inferior good is a good for which demand decreases as income increases. This is generally because there are substitute goods that people can purchase that are of higher quality or more desirable as income rises. Examples of inferior goods can include generic or store-brand products, fast food, and public transportation. Therefore, option B is the correct answer.

Question 4

Demand shifters do not include

Accepted Answer

The price of the good itself does not shift the demand curve; it causes movement along the demand curve. Demand shifters include factors like consumer income, advertising, and prices of other goods.

Question 5

Suppose that supply increases and demand decreases. What effect will this have on price and quantity?

Accepted Answer

The answer of Suppose that supply increases and demand decreases....

Question 6

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If the government sets a price floor of $30 and agrees to purchase all surplus at $30 per unit, the total cost to the government will be:

Accepted Answer

At a price floor of $30, Q^d = 100 - 2(30) = 40 and Q^S = 5 + 3(30) = 95. The surplus is 95 - 40 = 55 units. The government buys 55 units at $30 each, costing 55 * 30 = $1,650.

Question 7

Suppose good X is a normal good. Then a decrease in income would lead to

Accepted Answer

A decrease in income will lead to a decrease in the demand for normal goods. This will cause the demand curve for good X to shift inward.

Question 8

The minimum legal price that can be charged in a market is:

Accepted Answer

A minimum legal price is a price floor, which sets a lower limit on how much a product can be sold for. This is typically used as a form of regulation to ensure that producers receive a fair income for their products, which can be especially important in industries with high levels of competition or where the cost of production is high.

Question 9

Suppose both supply and demand decrease. What effect will this have on price?

Accepted Answer

When both supply and demand decrease, it is not clear which of the two effects will dominate, leading to a potential increase or decrease in price depending on the relative magnitude of the shifts. Therefore, the price may rise or fall, and it cannot be determined with certainty.

Question 10

An ad valorem tax causes the supply curve to:

Accepted Answer

The answer of An ad valorem tax causes the supply...

Question 11

If a shortage exists in a market, the natural tendency is for:

Accepted Answer

In a market shortage, demand for the product or service is higher than the supply available. This leads to an increase in the price of the product or service as consumers compete to purchase the limited supply. As the price increases, suppliers may try to increase their production, but this may take time, leading to a temporary decrease in the quantity supplied.

Question 12

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. The equilibrium price is:

Accepted Answer

The answer of Suppose market demand and supply are given...

Question 13

If steak is a normal good, what do you suppose would happen to price and quantity during an economic recession?

Accepted Answer

During an economic recession, people tend to have less disposable income, therefore, they may decrease their demand for luxury foods like steak. As a result, both price and quantity are expected to decrease.

Question 14

Technological advances will cause the supply curve to:

Accepted Answer

Technological advances increase the efficiency of production, resulting in an increase in supply. Therefore, the supply curve will shift to the right.

Question 15

The law of demand states that if the price of a good falls and all other things remain the same, the

Accepted Answer

The law of demand states that there is an inverse relationship between the price of a good and the quantity demanded of that good, ceteris paribus. This means that if the price of a good falls and all other things remain constant, the quantity demanded of that good will increase. Therefore, the correct answer is B, as the quantity demanded of the good rises.

Question 16

Which of the following is least likely to be a normal good?

Accepted Answer

Bologna is often considered a lower-quality, cheaper option for meat products, indicating that it is more likely to be an inferior good rather than a normal good.

Question 17

Changes in the price of other goods lead to

Accepted Answer

When the price of other goods changes, it leads to a change in the consumer's preferences and tastes. This change in preferences and tastes leads to a change in the demand for the original good, which is shown by a shift in the demand curve. Therefore, the correct option is B – a change in demand.

Question 18

Suppose you produce wooden desks, and government legislation protecting the spotted owl has made it more expensive for you to purchase wood. What do you expect to happen to the equilibrium price and quantity of wooden desks?

Accepted Answer

When the cost of purchasing wood increases, it will increase the cost of production for wooden desks. This will cause a decrease in supply, resulting in a shift of the supply curve to the left. As a result, the equilibrium price of wooden desks will increase, but the equilibrium quantity of desks will decrease.

Question 19

Good X is a normal good if an increase in income leads to

Accepted Answer

A normal good is a good for which the demand increases as income increases. Therefore, an increase in income will lead to an increase in the demand for good X.

Question 20

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If a price ceiling of $15 is imposed,

Accepted Answer

At a price ceiling of $15, Q^d = 100 - 2(15) = 70 and Q^S = 5 + 3(15) = 50. Therefore, there will be a shortage of 70 - 50 = 20 units.

Quiz 2: Market Forces: Demand and Supply

Suppose market demand and supply are given by Qd = 100 - 2P and QS = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?