1. Assume the income of consumers of good X (a normal good) increases. What occu
ID: 1197604 • Letter: 1
Question
1. Assume the income of consumers of good X (a normal good) increases. What occurs at the initial equilibrium price for X that signals market participants that the equilibrium price must change?
A. A surplus is created by a decrease in demand.
B. A shortage is created by an increase in demand.
C. A surplus is created by an increase in supply.
D. A shortage is created by a decrease in supply
2. Assume there is an improvement in the technology used to produce video disk players. What could be expected to happen to the equilibrium price and quantity in the market for video disk players?
a. Equilibrium price and quantity would both decrease.
b. Equilibrium price and quantity would both increase.
c. Equilibrium price would increase and equilibrium quantity would decrease.
d. Equilibrium price would decrease and equilibrium quantity would increase
3. Assume an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Assume the price of large cars increases due to a shift in consumer's preferences toward large cars and away from smaller cars. What would reasonably be expected to happen to the equilibrium price and quantity of the firm's small cars?
a. Equilibrium price would decrease and equilibrium quantity would increase.
b. Equilibrium price and quantity would both decrease.
c. Equilibrium price and quantity would both increase.
d. Equilibrium price would increase and equilibrium quantity would decrease.
4. All else constant, a large decrease in the number of people who want to own sport utility vehicles (SUVs) because of their poor fuel efficiency could be expected to cause:
a. a decrease in the equilibrium price of gasoline.
b. an increase in the supply of SUVs.
c. an increase in the supply of gasoline.
d. an increase in the equilibrium price of SUVs.
5. Which of the following best describes the influence of successful advertising on the market for aspirin?
a. Individuals' demand curves shift to the right, but the market demand curve remains at its original position.
b. The market supply curve for aspirin shifts to the right, causing equilibrium price to decrease.
c. The market demand curve shifts to the right, creating a shortage at the original equilibrium price.
d. The market supply curve shifts to the right, creating a surplus at the original equilibrium price.
6. Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following would not be expected to happen?
a. Oil companies would "ration" their supplies of gasoline by raising price.
b. Quantity demanded would decrease.
c. There would be a shortage of the original equilibrium price.
d. The demand curve would shift to the left.
7. In the run up to the war in Iraq that began in 2003, one of the many concerns raised was that a war could result in a decrease in the supply of oil. At the same time, the U.S. economy was having a hard time recovering from the most recent recession and, as a result, incomes of many consumers had decreased (due to layoffs, wage cuts, and so forth). All else constant, it was reasonable to predict, with certainty, that the combination of these two factors would cause the equilibrium:
a. price of oil to increase.
b. price of oil to decrease.
c. quantity of oil to increase.
d. quantity of oil to decrease.
A. A surplus is created by a decrease in demand.
B. A shortage is created by an increase in demand.
C. A surplus is created by an increase in supply.
D. A shortage is created by a decrease in supply
2. Assume there is an improvement in the technology used to produce video disk players. What could be expected to happen to the equilibrium price and quantity in the market for video disk players?
a. Equilibrium price and quantity would both decrease.
b. Equilibrium price and quantity would both increase.
c. Equilibrium price would increase and equilibrium quantity would decrease.
d. Equilibrium price would decrease and equilibrium quantity would increase
3. Assume an auto firm's factories are capable of producing both large and small cars and are operating at full capacity. Assume the price of large cars increases due to a shift in consumer's preferences toward large cars and away from smaller cars. What would reasonably be expected to happen to the equilibrium price and quantity of the firm's small cars?
a. Equilibrium price would decrease and equilibrium quantity would increase.
b. Equilibrium price and quantity would both decrease.
c. Equilibrium price and quantity would both increase.
d. Equilibrium price would increase and equilibrium quantity would decrease.
4. All else constant, a large decrease in the number of people who want to own sport utility vehicles (SUVs) because of their poor fuel efficiency could be expected to cause:
a. a decrease in the equilibrium price of gasoline.
b. an increase in the supply of SUVs.
c. an increase in the supply of gasoline.
d. an increase in the equilibrium price of SUVs.
5. Which of the following best describes the influence of successful advertising on the market for aspirin?
a. Individuals' demand curves shift to the right, but the market demand curve remains at its original position.
b. The market supply curve for aspirin shifts to the right, causing equilibrium price to decrease.
c. The market demand curve shifts to the right, creating a shortage at the original equilibrium price.
d. The market supply curve shifts to the right, creating a surplus at the original equilibrium price.
6. Assume there is a reduction in the shipments of petroleum products due to political tension in the Persian Gulf. Which of the following would not be expected to happen?
a. Oil companies would "ration" their supplies of gasoline by raising price.
b. Quantity demanded would decrease.
c. There would be a shortage of the original equilibrium price.
d. The demand curve would shift to the left.
7. In the run up to the war in Iraq that began in 2003, one of the many concerns raised was that a war could result in a decrease in the supply of oil. At the same time, the U.S. economy was having a hard time recovering from the most recent recession and, as a result, incomes of many consumers had decreased (due to layoffs, wage cuts, and so forth). All else constant, it was reasonable to predict, with certainty, that the combination of these two factors would cause the equilibrium:
a. price of oil to increase.
b. price of oil to decrease.
c. quantity of oil to increase.
d. quantity of oil to decrease.
Explanation / Answer
1. B.) A shortage is created by an increase in demand.
As income increases consumers of X starts demanding X for more and this raises its demand. The demand creates a shortage of X in market and hence the result.
2. d.) Equilibrium price would decrease and equilibrium quantity would increase
When there is an improvement in the technology used to produce video disk players, more video disk players are produced. Thus increasing the supply of video disk players in the market. Hence the result from a simple supply curve shift rightwards.
3. b) Equilibrium price and quantity would both decrease.
As the price of large cars increases due to a shift in consumer's preferences toward large cars and away from smaller cars, people raise the demand for large cars. Simultaneously, the demand for small cars decreases, which provides us the result.
4. a.) a decrease in the equilibrium price of gasoline
The demand for gasoline falls, as people wanting to buy SUV's shifted their demand to fuel efficient cars . Thus, the demand for gasoline will fall at large and thus the result.
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