Practice Questions - Chapter 3 1.

The equation for the demand curve in the below diagram:

A. is P = 70 Q. B. is P = 35 2Q. C. is P = 35 .5Q. D. cannot be determined from the information given.

2. Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: A. $10 and 60 units. B. $9 and 50 units. C. $8 and 60 units. D. $7 and 50 units.

3. Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be: A. $10 and 60 units. B. $9 and 60 units. C. $8 and 80 units. D. $7 and 30 units.

4. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium. B. a shortage of 50 units. C. a surplus of 50 units. D. a surplus of 100 units.

5. Refer to the above diagram. A price of $20 in this market will result in a: A. shortage of 50 units. B. surplus of 50 units. C. surplus of 100 units. D. shortage of 100 units.

6. Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: A. $30. B. $60. C. $40. D. $20.

7. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. supply has decreased and equilibrium price has increased. B. demand has increased and equilibrium price has decreased. C. demand has decreased and equilibrium price has decreased. D. demand has increased and equilibrium price has increased.

8. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. the equilibrium position has shifted from M to K. B. an increase in demand has been more than offset by an increase in supply. C. the new equilibrium price and quantity are both greater than originally. D. point M shows the new equilibrium position. 9. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by: A. an increase in the wages paid to workers producing this good. B. the development of more efficient machinery for producing this commodity. C. this product becoming less fashionable. D. an increase in consumer incomes.

10.Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by: A. a decline in the number of buyers in the market. B. a decline in the price of a substitute good. C. an increase in incomes if the product is a normal good. D. an increase in incomes if the product is an inferior good.

11.Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? A. A only. B. B only. C. C only. D. D only.

12.Which of the above diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? A. A only. B. A and D. C. B only. D. D only.

13.Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing? A. A and C. B. A only. C. B only. D. C only.

Answers: 1) C Feedback: Using the slope-intercept form of equation for a linear curve, the y-intercept is 35 and the slope is negative (-0.5) 2) C Feedback: The quantity demanded and the quantity supplied are equal at the price of $8 and 60 units 3) B Feedback: The quantity demanded and the quantity supplied are equal at the price of $9 and 60 units 4) D Feedback: The supply and demand curves intersect at $40 and 150 units. At the $60 price, Quantity demanded is 100 units and quantity supplied is 200 units. Thus, there is a surplus of 100 units. 5) D Feedback: The supply and demand curves intersect at $40 and 150 units. At the $20 price, Quantity demanded is 200 units and quantity supplied is 100 units. Thus, there is a shortage of 100 units. 6) B Feedback: The demand curve shows the quantities that will be demanded at each possible price. Thus, at the price of $60, 100 units will be demanded. 7) B Feedback: Equilibrium starts at Point J. After the demand (D1) and supply (S1) curves shift to the right the new equilibrium point becomes Point L. Quantity has increased and price has decreased. 8) B Feedback: Equilibrium starts at Point J. After the demand (D1) and supply (S1) curves shift to the right the new equilibrium point becomes Point L. Quantity has increased and price has decreased. Because L is below J, supply must have been the dominant shiftmore than offsetting the demand shift. 9) B Feedback: New technology that lowers cost of production will shift the supply curve to the right, increasing supply (and, ultimately, quantity supplied) and decreasing price. 10) C Feedback: A decline in the number of buyers would shift D1 to the left; a decline in the price of a substitute would shift D1 to the left; an increase in incomes, if the product was an inferior good, would shift D1 to the left. 7

11) C Feedback: Auto workers wages are a cost of production. An increase in wages would raise cost of production causing the supply curve to shift to the left, as in C. 12) A Feedback: Personal computers and software are complementary goods. A decline in the price of computers would result in an increase in the quantity of computers demanded. Ann increase in the quantity of computers demanded would lead to an increase in the demand for software. 13) B Feedback: Increases in incomes result in increased demand for normal goods and decreased demand for inferior goods. Second-hand clothing is generally considered an inferior good.