TUTORIAL 2
Demand and supply
QUIZ
1. Which of the following is NOT a characteristic of a perfectly competitive market?
a. The same goods being offered by large number of suppliers.
b. Large number of sellers and much less number of buyers
c. Buyer are very numerous and price takers.
d. It is easy for new firms to enter the market.
2. If average household income rises and we observe that the demand for pork chops
increases, pork chops must be
a. an inferior good.
b. a normal good.
c. a surplus good.
d. a necessity.
e. a shortage good.
3. Suppose that aluminum is a key production input in the production of bicycles. If the
price of aluminum falls, and all other variables are held constant, we expect
a. the demand for aluminum to rise.
b. the supply of bicycles to rise.
c. the supply of bicycles to fall.
d. the demand for bicycles to rise.
e. the demand for bicycles to fall.
4. The market for denim jeans is in equilibrium, and the price of polyester pants, a
substitute good, rises. In the jean market
a. supply falls, increasing the price and decreasing the quantity.
b. supply falls, increasing the price and increasing the quantity.
c. demand falls, increasing the price and decreasing the quantity.
d. demand rises, increasing the price and increasing the quantity.
e. supply and demand both fall, causing an ambiguous change in price but a
definite decrease in quantity.
5. The apple market is in equilibrium. Suppose we observe that apple growers are using
more pesticides to increase apple production. At the same time, we hear that the price
of pears, a substitute for apples, is rising. Which of the following is a reasonable
prediction for the new price and quantity of apples?
a. Price rises, but quantity is ambiguous.
b. Price falls, but quantity is ambiguous.
c. Price is ambiguous, but quantity rises.
d. Price is ambiguous, but quantity falls.
e. Both price and quantity are ambiguous.
6. An increase in demand means that:
a. when the price drops, consumers are willing to purchase greater quantities of
the good.
b. when the price rises, consumers are willing to purchase greater quantities of
the good.
c. consumers are willing to purchase greater quantities of the good at any given
price.
d. consumers make the price drop by buying greater quantities of the good.
7. A competitive market for coffee, a normal good, is currently in equilibrium. Which of
the following would most likely result in an increase in the demand for coffee?
a. Consumer income falls.
b. The price of tea rises.
c. The wage of coffee plantation workers falls.
d. Technology in the harvesting of coffee beans improves.
e. The price of coffee brewing machines rises.
8. Which of the following certainly lowers the equilibrium price of a good exchanged in
a competitive market?
a. The demand curve shifts to the right.
b. The supply curve shifts to the left.
c. The demand curve shifts to the left and the supply curve shifts to the right.
d. The demand curve shifts to the right and the supply curve shifts to the left.
e. Both the demand and supply curves shift to the left.
9. An effective (binding) price ceiling in the market for good X likely results in
a. a persistent surplus of good X.
b. a persistent shortage of good X.
c. an increase in the demand for good Y, a substitute for good X.
d. a decrease in the demand for good Z, a complement with good X.
e. a rightward shift in the supply curve of good X.
10. Suppose a price floor is installed in the market for coffee. One result of this policy
would be
a. a decrease in the demand for coffee-brewing machines.
b. a persistent shortage of coffee in the market.
c. an increase in the demand for coffee.
d. a decrease in the profits for the owners of coffee plantations.
11. If the price in a market happens to be below equilibrium, there will be a ________ in
the market, and the price will tend to __________.
a. surplus, drop
b. surplus, rise
c. shortage, drop
d. shortage, rise
12. If the price in the market happens to be above equilibrium, there will be a_______ in
the market, and the price will tend to ___________.
a. surplus, drop
b. surplus, rise
c. shortage, drop
d. shortage, rise
13. Suppose that a scientific study just published demonstrates that easing apples makes
people much healthier. How will this affect the equilibrium price and quantity in the
market?
a. The equilibrium price will increase and the equilibrium quantity will decrease.
b. The equilibrium price will decrease and the equilibrium quantity will increase.
c. Both equilibrium quantity and price will increase.
d. Both equilibrium quantity and price will decrease.
14. Suppose the price of corn syrup increases. Given that corn syrup is a major ingredient
in the production of soft drinks, how will this affect the equilibrium price and quantity
in the soda market?
a. The equilibrium price will increase and the equilibrium quantity will decrease.
b. The equilibrium price will decrease and the equilibrium quantity will increase.
c. Both equilibrium quantity and price will increase.
d. Both equilibrium quantity and price will decrease.
15. Suppose that a regulation is in place that does not allow the price of a good to exceed
$5. If this price is above equilibrium price in the market, this would be an example of
a:
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.
16. Suppose that a regulation is in place that does not allow the price of a good to fall
below $10. If this price is above equilibrium price in the market, this would be an
example of a :
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.
17. Suppose that a regulation is in place that does not allow the price of a good to exceed
$5. If this price is below equilibrium price in the market, this would be an example of
a:
a. binding price ceiling.
b. not binding price ceiling.
c. binding price floor.
d. not binding price floor.
18. If a price floor is in place and it is binding, the market will
a. remain in equilibrium, unaffected by the price floor.
b. experience a shortage.
c. experience a surplus.
d. adjust its equilibrium point toward the price floor.
19. If a price ceiling is in place and it is binding, the market will
a. remain in equilibrium, unaffected by the price ceiling.
b. experience a shortage.
c. experience a surplus.
d. adjust its equilibrium point toward the price floor.
20. If a price floor is in place and it is not binding, the market will:
a. Remain in equilibrium, unaffected by the price floor.
b. Experience a shortage.
c. Experience a surplus.
d. Adjust its equilibrium point toward the price floor.
PROBLEMS:
Problem 1: Change in market conditions
What would be the effects of the following events on the equilibrium market price and
quantity? Use diagram to illustrate these changes. Remember to follow the three steps to
analyze changes in market conditions!
1. The fresh vegetable market: awareness for healthy diet increased.
2. The pork meat market: a pig disease spread all over the country.
3. The bicycle market: economic growth help increase average income.
4. The electric bicycle market: unrest in the Middle East persists resulting in higher
prices of petroleum products.
5. The car market: the government reduce import tariff on imported automobile.
Problem 2:
Suppose the market demand curve for a product is given by Qd= 1000 - 10P and the
market supply curve is given by Qs= 50 + 25P.
a. Draw the demand and supply curves.
b. What are the equilibrium price and quantity?
c. Suppose the price in this market is $25. What is the amount of excess demand?