Auxiliary Problems for Week 2
1. The market demand curve results from
a.
b.
c.
d.
Adding the quantities demanded at each price by all consumers.
Adding the quantities supplied at each price by all suppliers.
Adding each supply curve to each demand curve.
The market demand curves cannot be determined from individual demand curves.
Answer: a
Feedback: To find the quantity demanded in the market, you need to know how much
each individual may want of a good or service. When you add up the quantities that
everyone wants at a given price level, you are summing the individual demand curves.
This results in the market demand curve.
2. Which is true of an individual demand curve?
a.
b.
c.
d.
It slopes downward because of the law of demand.
It slopes upward because as the price falls, consumers are willing to buy more.
It shows the quantities of a good an individual is able but not willing to buy.
It is vertical because most consumers do not care about price.
Answer: a
Feedback: The law of demand says there is an inverse relationship between a good’s
price and the quantity demanded of that good. This means that as price decreases,
quantity demanded by the individual will increase.
3. For the law of demand to be true,
a. The only factor influencing a consumer is the price of the product.
b. Other factors that might influence a purchase besides price do not change.
c. A consumer will choose the cheaper price on two identical products sold by two
separate and nearby sellers.
d. All of the answers are correct.
Answer: d
Feedback: The law of demand assumes ceteris paribus, or “all else equal.” That
we hold all else constant and just change prices.
4. When the price of a good rises,
a.
b.
c.
d.
The quantity demanded of a complementary good rises.
The quantity demanded of a complementary good falls.
The demand for a complementary good shifts to the right.
The demand for a complementary good shifts to the left.
means
Answer: d
Feedback: Goods are often interrelated. In this case, when the price of one good
causes a leftward shift in the demand for a complementary good.
rises, it
5. Which of the following will shift the demand curve to the right for a normal good?
a.
b.
c.
d.
An increase in consumer income.
An increase in the price of a complementary good.
A decrease in consumer tastes for this product.
A decrease in the number of buyers in a market.
Answer: a
Feedback: Normal goods are those that consumers buy more of when their income goes
up. An increase in income will shift the demand curve rightward.
6. A supply curve is upward-sloping because
a. At higher prices sellers have a greater incentive to produce more, ceteris paribus.
b. The law of supply states that as price rises, the quantity supplied increases.
c. At lower prices sellers may not be covering their costs of production and are therefore
willing to supply less.
d. All of the answers are correct.
Answer: d
Feedback: Sellers like high prices for their products. As prices rise, sellers bring a
higher quantity to market.
7. The market supply curve will shift to the right if
a.
b.
c.
d.
The price of the product rises.
A new technology improves production.
There are fewer sellers in the market.
The costs of production rise.
Answer: b
Feedback: Improved technology means larger quantities will be supplied at all
possible prices. Better technology allows the seller to produce more with the same
effort and expense.
8. When a market is in equilibrium,
a.
b.
c.
d.
There are still shortages, especially for fossil fuels.
The quantity demanded equals the quantity supplied.
All government regulations have been repealed.
There are still some surpluses because sellers can be stubborn.
Answer: b
Feedback: The definition of equilibrium is quantity demanded equals quantity
supplied.
9. Which of the following will not change the demand for movie tickets?
a.
b.
c.
d.
A change in the cost of child care services.
A change in the price of movie tickets.
A change in the availability of Internet movies.
A change in the income of moviegoers.
Answer: b
Feedback: A change in the price of movie tickets changes the quantity demanded, not the
demand.
10. Which of the following happens when a price ceiling is set below the market’s
equilibrium price?
a.
b.
c.
d.
Quantity demanded will increase when price falls.
A surplus will develop when price falls.
The quantity sold will increase when price falls.
The market will remain in equilibrium.
Answer: a
Feedback: If a price ceiling is set below the market’s equilibrium price, the ceiling
is said to be “binding.” In this case, the lower-than-equilibrium price will induce a
larger quantity demanded and create a shortage.
11.
Household members exchange their labor for income in a ______________ (factor,
product) market, whereas they exchange their income for goods and services in a
___________ (factor, product) market.
Answer :
. factor; product
Additional study questions
1. A market is said to be in equilibrium when
A. Demand is fully satisfied at all alternative prices.
B. The buying intentions of all consumers are realized.
C. The supply intentions of all sellers are realized.
D. The quantity demanded equals the quantity supplied.
Equilibrium occurs at the intersection of the supply and demand curves.
2. If bagels and doughnuts are substitutes, then a decrease in the price of doughnuts will result in
A. An increase in the demand for doughnuts.
B. A decrease in the demand for doughnuts.
C. An increase in the demand for bagels.
D. A decrease in the demand for bagels.
Consumers will substitute the relatively cheaper doughnuts when the price of doughnuts falls,
thereby causing the demand for bagels to decrease.
3. Ceteris paribus, which of the following would generally cause an increase in the demand
curve for new automobiles?
A. A decrease in the price of new automobiles.
B. An increase in consumers' income.
C. The new models being perceived as ugly compared with old models.
D. Consumer expectations that the price of new automobiles will be lower next year.
A decrease in the price of new automobiles would cause a movement along the demand curve.
Perceived ugliness and expectations of lower prices would decrease the demand. An increase in
consumers' income would increase the demand for goods.
4. A change in the price of a good
A. Causes a shift in the supply curve.
B. Results in a change in quantity supplied.
C. Results in a change in supply.
D. Is a determinant of supply.
Because the supply curve shows the quantity supplied at different price levels, when the price
changes, we can track changes in quantity supplied along the supply curve.
5. Ceteris paribus, if the subsidies given to corn syrup producers decrease, then we can expect
A. A decrease in the demand for corn syrup.
B. A decrease in the supply of corn syrup.
C. An increase in the demand for corn syrup.
D. An increase in the supply of corn syrup.
A reduction in subsidies will reduce the incentive to produce corn syrup, thus decreasing the
supply of corn syrup.
6. Which of the following can change without shifting either demand or supply, ceteris paribus?
A. The price of the good itself.
B. The prices of other goods.
C. Incomes.
D. Expectations.
A change in the price of a good causes a movement along the demand and the supply curves. It
will not cause the demand or supply to shift.
7. Tickets to a sporting event go on sale and sell out almost instantly. This implies that
A. There are too many tickets to the event.
B. The price for the tickets is below the equilibrium price.
C. The tickets must be very expensive.
D. There is a surplus of tickets.
When a price is below equilibrium price, a shortage will occur. Tickets selling almost instantly
imply that everyone who is willing and able to go may not be able to obtain tickets.
8. If the government places a binding or effective price ceiling on cancer-treating drugs, then
A. Fewer people will die from cancer.
B. More people will die from cancer.
C. There will be no change in the number of people who die from cancer.
D. The supply of cancer-treating drugs will increase.
Price ceilings increase the quantity demanded, decrease the quantity supplied, and create market
shortages.
9. The equilibrium price and quantity in Figure 3.2 are, respectively,
Figure 3.2
Supply and Demand
A. $9 and 30 units.
B. $6 and 20 units.
C. $12 and 20 units.
D. $12 and 40 units.
Demand intersects supply at a price equal to $9 and quantity equal to 30.
10. If the actual market price were fixed at $15 per unit in Figure 3.2,
Figure 3.2
Supply and Demand
A. There would be a surplus of 40 units.
B. There would be a surplus of 20 units.
C. There would be a shortage of 40 units.
D. There would be a shortage of 20 units.
At a price of $15, the quantity supplied is 50 while the quantity demanded is 10.
11. If the actual market price were fixed at $6 per unit in Figure 3.2,
Figure 3.2
Supply and Demand
A. There would be a surplus of 40 units.
B. There would be a surplus of 20 units.
C. There would be a shortage of 40 units.
D. There would be a shortage of 20 units.
At a price of $6, quantity demanded will be 40 and quantity supplied will be 20, which will
result in a shortage of 20 (40 - 20).
12. Which panel of Figure 3.3 represents the changes in the market for student housing when
university enrollment increases and at the same time the university destroys several older
residence halls and apartment buildings?
Figure 3.3
Shifts of Supply and Demand
A. A.
B. B.
C. C.
D. D.
The increase in enrollment increases the number of buyers, causing demand to increase. The
destruction of residence halls and apartment buildings causes supply to decrease.
13. Which panel of Figure 3.3 represents the changes in the market for textbooks when the cost
of paper decreases and the government increases the number of student loans it grants?
Figure 3.3
Shifts of Supply and Demand
A. A.
B. B.
C. C.
D. D.
A decrease in the cost of production, such as lower paper prices, will cause supply to increase,
and the increase in students will cause the demand to increase.
14. If the government required the actual market price to be fixed at $6 per unit in Figure 3.3,
Figure 3.3
Shifts of Supply and Demand
A. A binding or effective price floor would result.
B. A binding or effective price ceiling would result.
C. A nonbinding or noneffective price ceiling would result.
D. The market would reach equilibrium.
A binding or effective price ceiling will occur when the maximum price is below the equilibrium
price.