162 ? Chapter 4/The Market Forces of Supply and Demand
6. The quantity demanded of a product is the amount that buyers are willing and able to purchase at a particular price. ANS: T PTS: 1 DIF: 1 REF: 4-2 TOP: Quantity demanded MSC: Definitional 7. The law of demand states that the quantity demanded of a product is positively related to price. ANS: F PTS: 1 DIF: 1 REF: 4-2 TOP: Law of demand MSC: Interpretive 8. If the demand for a good falls when income falls, the good is called an inferior good. ANS: F PTS: 1 DIF: 1 REF: 4-2 TOP: Inferior goods MSC: Definitional
9. When an increase in the price of one good lowers the demand for another good, the two goods are called
complements. ANS: T PTS: 1 DIF: 1 REF: 4-2 TOP: Complements MSC: Definitional 10. Baseballs and baseball bats are substitute goods. ANS: F PTS: 1 DIF: 2 REF: 4-2 TOP: Substitutes MSC: Interpretive
11. An increase in the price of pizza will shift the demand curve for pizza to the left. ANS: F PTS: 1 DIF: 2 REF: 4-2 TOP: Demand MSC: Interpretive
12. The market demand is the average of all of the individual demands for a particular good or service. ANS: F PTS: 1 DIF: 2 REF: 4-2 TOP: Market demand MSC: Interpretive 13. Whenever a determinant of demand other than price changes, the demand curve shifts. ANS: T PTS: 1 DIF: 2 REF: 4-2 TOP: Demand curve MSC: Interpretive
14. A decrease in the price of a product and an increase in the number of buyers in the market affect the demand curve in
the same general way. ANS: F PTS: 1 DIF: 2 REF: 4-2 TOP: Demand curve MSC: Interpretive 15. The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a particular price. ANS: T PTS: 1 DIF: 1 REF: 4-3 TOP: Quantity supplied MSC: Definitional 16. The law of supply states that, other things equal, when the price of a good rises, the quantity supplied of the good
falls. ANS: F PTS: 1 DIF: 2 REF: 4-3 TOP: Law of supply MSC: Interpretive 17. If a company making frozen orange juice expects the price of their product to be higher next month, it will supply
more to the market this month. ANS: F PTS: 1 DIF: 2 REF: 4-3 TOP: Expectations MSC: Interpretive 18. A supply curve slopes upward because, all else equal, a higher price means a greater quantity supplied. ANS: T PTS: 1 DIF: 2 REF: 4-3 TOP: Supply curve MSC: Interpretive
19. A movement along a supply curve is called a change in supply while a shift of the curve is called a change in quantity
supplied. ANS: F PTS: 1 DIF: 2 REF: 4-3 TOP: Supply | Quantity supplied MSC: Definitional
Chapter 4/The Market Forces of Supply and Demand ? 163
20. If there is an improvement in the technology used to produce a good, the supply curve for that good will shift to the
left. ANS: F PTS: 1 DIF: 2 REF: 4-3 TOP: Supply | Technology MSC: Interpretive 21. A reduction in an input price will cause a change in quantity supplied, but not a change in supply. ANS: F PTS: 1 DIF: 2 REF: 4-3 TOP: Supply | Inputs MSC: Interpretive 22. At the equilibrium price, quantity demanded is equal to quantity supplied. ANS: T PTS: 1 DIF: 1 REF: 4-4 TOP: Equilibrium MSC: Definitional 23. Surpluses drive price up while shortages drive price down. ANS: F PTS: 1 DIF: 2 REF: 4-4 TOP: Shortages | Surpluses MSC: Interpretive
24. A shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium
price. ANS: T PTS: 1 DIF: 2 REF: 4-4 TOP: Shortages | Surpluses MSC: Interpretive 25. It is not possible for demand and supply to shift at the same time. ANS: F PTS: 1 DIF: 1 REF: 4-4 TOP: Supply | Demand MSC: Interpretive
26. In a market, the price of any good adjusts until quantity demanded equals quantity supplied. ANS: T PTS: 1 DIF: 2 REF: 4-4 TOP: Quantity demanded | Quantity supplied MSC: Interpretive 27. The behavior of buyers and sellers drives markets toward equilibrium. ANS: T PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium MSC: Interpretive
Short Answer
1.
A. B.
What is the difference between a \
answer.
For each of the following changes, determine whether there will be a movement along the demand curve (a change in quantity demanded) or a shift in the demand curve (a change in demand). a. a change in the price of a related good b. a change in tastes
c. a change in the number of buyers d. a change in price
e. a change in expectations f. a change in income
164 ? Chapter 4/The Market Forces of Supply and Demand
ANS:
a. A change in demand refers to a shift in the demand curve. A change in quantity demanded refers to a movement
along a fixed demand curve.
b. A change in price causes a change in quantity demanded. All of the other changes listed shift the demand curve.
PTS: 1 DIF: 2 REF: 4-2 TOP: Demand | Quantity demanded MSC: Applicative
2.
a. What is the difference between a \b. For each of the following changes, determine whether there will be a change in quantity supplied or a change in
supply.
i. a change in the resource cost
ii. a change in producer expectations iii. a change in price
iv. a change in technology v. the number of sellers ANS:
a. A change in supply refers to a shift in the supply curve. A change in quantity supplied refers to a movement along
a fixed supply curve.
In part b, all of the events except (iii) shift the supply curve. PTS: 1 DIF: 2 REF: 4-3
TOP: Supply | Quantity supplied MSC: Applicative
3. This question deals with demand and supply and refers you to the table below.
a. Given the table, graph the demand and supply curves for flashlights. Make certain to label equilibrium price and
equilibrium quantity.
Price $5 $4 $3 $2 $1
Quantity Demanded/Month 6,000 8,000 10,000 12,000 14,000 Quantity Supplied/Month 10,000 8,000 6,000 4,000 2,000
Chapter 4/The Market Forces of Supply and Demand ? 165
b. What is the equilibrium price and equilibrium quantity?
c. Suppose the price is currently at $5. What problem would exist in the economy? What would you expect to
happen to price? Show this on your graph.
d. Suppose the price is currently $2. What problem exists in the economy? What would you expect to happen to
price? Show this on your graph.
ANS:
a.
b. Equilibrium price would be $4 and equilibrium quantity would be 8,000.
c. A surplus of 4,000 flashlights would be the problem in the economy and we would expect the price to fall. d. A shortage of 8,000 flashlights would be the problem in the economy and we would expect the price to rise. PTS: 1 DIF: 2 REF: 4-4 TOP: Equilibrium | Shortages | Surpluses MSC: Applicative
4. Fill in the accompanying table, showing whether equilibrium price and equilibrium quantity go up, down or stay the
same.
No Change in Demand An Increase in Demand A Decrease in Demand
No Change in Supply An Increase in Supply A Decrease in Supply
166 ? Chapter 4/The Market Forces of Supply and Demand
ANS: No Change in Demand An Increase in Demand A Decrease in Demand PTS: 1 DIF: 2 TOP: Demand | Supply
No Change in Supply P same Q same P up Q up P down Q down REF: 4-4
MSC: Interpretive
An Increase in Supply P down Q up P ambiguous Q up P down Q ambiguous A Decrease in Supply P up Q down P up Q ambiguous P ambiguous Q Down 5. Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of the following would have on demand or supply. Also show how equilibrium price and quantity have changed. a. Winter starts and the weather turns sharply colder. b. The price of tea, a substitute for hot chocolate, falls. c. The price of cocoa beans decreases. d. The price of whipped cream falls.
e. A better method of harvesting cocoa beans is introduced.
f. The Surgeon General of the U.S. announces that hot chocolate cures acne.
g. Protesting farmers dump millions of gallons of milk, causing the price of milk to rise.
h. Consumer income falls because of a recession and hot chocolate is considered a normal good. i. Producers expect the price of hot chocolate to increase next month.
j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium. ANS: