Refer to Figure 4.2 above. The market is initially in equilibrium at the interse

Question

Refer to Figure 4.2 above. The market is initially in equilibrium at the intersection of S2 and D, and supply shifts from S2 to S1. Which of the following statements is true? a. Price will still serve as a rationing device causing quantity demanded to rise from 8 to 11 soft pretzels. b. There is no need for price to serve as a rationing device in this case because the new equilibrium quantity is lower than the original equilibrium quantity. c. Price will still serve as a rationing device causing quantity supplied to fall from 8 to 4 soft pretzels. d. The market cannot move to a new equilibrium until there is also a change in supply. Which of the following will not shift the demand curve for grapefruit? a. an announcement that eating a grapefruit before every meal will induce weight loss b. a new technology that cuts the labor time needed to harvest grapefruit c. an announcement that eating grapefruit causes skin problems d. a fall in the price of oranges e. an announcement that the price of grapefruit will increase next week A shortage will occur if a is set the equilibrium price. a. price floor; below b. price floor; above c. price ceiling; above d. price ceiling; below The government imposes a price ceiling on heating oil that is below the market price. The rationing scheme that will minimize the misallocation of resources would be a. using rationing coupons that cannot be resold. b. using rationing coupons that can be resold. c. using rationing on a first-come, first-served basis. d. using rationing only on weekdays. Demand for a good will always increase when a. the price of a complementary good falls b. the price of a substitute good falls c. tastes change d. incomes decrease e. the price of the good falls

Explanation / Answer

a. Price will act a rationaing increases and quantity demanded will rise. According to law of demand when price falls, quantity demanded rises.

b. a new technology that cuts labor costs will shift supply curve and not demand curve.

c. price ceiling below equilibrium will create more demand and less supply, creating shortage in the market.

d. Using coupons that can be resold.

e. when the price of good falls. This is the law of demand.

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