Economics 111.3 Winter 14
January 27th, 2014
Lecture 8
Ch. 3 and Ch. 6
Question 1
The market for coffee is initially in
equilibrium; cream is a complement
of coffee. The price of cream falls.
Simultaneously, there is an increase
in the wages of farm workers who
harvest coffee beans. The equilibrium
quantity of coffee
A) decreases.
B) increases or decreases depending
on the slope of the supply and
demand curves.
C) increases.
D) increases, decreases, or remains
the same depending on the relative
shifts of the supply and demand
curves.
Question 2
A technological improvement lowers
the cost of producing coffee. At the
same time, preferences for coffee
decrease. The equilibrium quantity of
coffee
A) increases or decreases depending
on whether the price of coffee falls or
rises.
B) increases.
C) increases, decreases, or remains
the same depending on the relative
shifts of the demand and supply
curves.
D) decreases.
E) remains the same.
Question
6
The demand curve is P = 800 25QD. The supply curve is P = 500
+ 25QS. At market
equilibrium, the equilibrium
quantity is ________ and the
equilibrium price is ________.
A) 25; 0.17
B) 0.17; 25
C) 1,300; zero
D) 650; 6.0
E) 6.0; 650
Question 9
If a producer can use its
factors of production to
produce either good A or
good B, then a rise
in the price of A
A) increases the supply of B.
B) decreases the supply of A.
C) increases the supply of A.
D) decreases the supply of B.
E) both C and D.
Question 16
The graph in Figure 2.1.5 shows
Sunland's PPF for food and
sunscreen. Sunland faces
________ opportunity cost of food
and ________ opportunity of
sunscreen, which can be seen by
the shape of the PPF.
A) a decreasing; a decreasing
B) a decreasing; an increasing
C) an increasing; an increasing
D) a constant; a constant
E) an increasing; a decreasing
Question 19
A movement along the
production possibilities
frontier will result from
A) technological change.
B) change in the stock of
capital.
C) change in the labour
force.
D) all of the above.
E) none of the above.
A Growing Economy : Shifts in the
Production Possibility Curve
1.
2.
3.
4.
Capital accumulation, including all
new investment in land, physical
equipment, and human resources
through improvements in health,
education, and job skills
Growth in population
Increases in the natural resource base.
Technological progress
Question 22
If A and B are substitutes in
production and the price of A falls,
the supply of B
A) increases and the price of B rises.
B) increases and the price of B falls.
C) decreases and the price of B
rises.
D) does not change.
E) decreases and the price of B falls.
Government Interventions
Ch. 6 (up to p. 138)
Buyers look to government for ways
to hold prices down.
Sellers look to government for ways
to hold prices up.
Price Ceilings
• A price ceiling is a governmentimposed limit on how high a price
can be charged.
Shortage
P
S
P b/m
P*
Black
Market
Price
P̂
Excess Demand
D
Q̂
Q
A Regulated Housing Market
Rent control is a price ceiling on
rents set by government.
Rent ceilings set above
competitive equilibrium price
have no effect.
Rent ceilings set below
competitive equilibrium price
prevent the price from
regulating the quantities
supplied and demanded.
D
P
S
P0
S
D
Q
D
P
S
P0
Pc
S
SHORTAGE
Qs Q0 Qd
D
Q
Rent Controls
• The following are the general consequences
of rent control:
–
–
–
–
A huge shortage of living quarters.
New housing construction stopped.
Existing housing is allowed to deteriorate.
For many, the only way to get living quarters
is to offer a huge bribe to the landlord.
– Many families have to double up with other
family members.
When Rent Controls Work
• If a temporary increase in the demand for
housing is expected, rent controls may be
effective.
• This would create a temporary shortage of
housing, but it would prevent high prices
and a windfall to landlords.