Download Tutorial

Chapter 4 Tutorial
Markets in Action
©2000 South-Western College Publishing
1
1. Suppose prices for new homes have risen, yet
sales of new homes have also risen. We can
conclude that
a. the demand for new homes has risen.
b. the law of demand has been violated.
c. new firms have entered the construction
industry.
d. construction firms must be facing higher
costs.
A. The demand for new homes has risen
causing the price to increase and the quantity
of new homes to increase as illustrated on the
next page.
2
An increase in demand for new homes
S
P2
P1
D2
Q1
Q2
D1
3
2. Which of the following statements if true of a
market?
a. An increase in demand, with no change in
supply, will increase the equilibrium price
and quantity.
b. An increase in supply, with no change in
demand, will decrease the equilibrium price
and the equilibrium quantity.
c. A decrease in supply, with no change in
demand, will decrease the equilibrium price
and increase the equilibrium quantity.
d. all of the above are true.
A. See previous graph.
4
3. Consider the market for chicken. An increase in the
price of beef will
a. decrease the demand for chicken, creating a lower
price and a smaller amount of chicken purchased in
the market.
b. decrease the supply of chicken, creating a higher
price a and a smaller amount of chicken purchased
in the market.
c. increase the demand for chicken, creating a higher
price and a greater amount of chicken purchased in
the market.
d. increase the supply of chicken, creating a lower
price and a greater amount of chicken purchased in
the market.
C. An increase in the price of beef will cause an
increase in the demand for chicken because
beef and chicken are substitutes.
5
4. An increase in consumer income increases the
demand for oranges. As a result of the
adjustment to a new equilibrium, there is a (an)
a. leftward shift of the supply curve.
b. downward movement along the supply
curve.
c. rightward shift of the supple curve.
d. upward movement along the supply curve.
D. As the demand curve shifts to the right along
the upward sloping supply curve, there is a
movement along the supply curve as
illustrated on the next page.
6
The Effects of Shift in Demand on
Market Equilibrium
P
$1200
S
$900
Shortage
$600
$300
D1
4
8
12
16
D
2
Q
7
5. An increase in the wage paid to grape pickers
will cause the
a. demand curve for grapes to shift to the
right, resulting in higher prices for grapes.
b. demand curve for grapes to shift to the
left, resulting in lower prices for grapes.
c. supply curve for grapes to shift to the left,
resulting in lower prices for grapes.
d. supply curve for grapes to shift to the left,
resulting in higher prices for grapes.
D. An increase in costs is one factor that will
cause the supply curve to shift to the left
as production becomes more expensive as
illustrated on the next page.
8
The Effects of Shift in Supply on
Market Equilibrium
P
$800
S
$600
2
Shortage
$400
S1
$200
D
2
4
6
8
Q
9
6. If the federal government wants to raise the
price of cheese, it will
a. take cheese from government storage and
sell it.
b. encourage farmers to research ways to
produce more cheese.
c. subsidize purchases of farm equipment.
d. encourage farmers to produce less cheese.
D. As the supply curve for cheese shifts to the
left and moves along a downward sloping
demand curve, equilibrium price will increase
as illustrated on the next page.
10
The Effects of Shift in Supply on
Market Equilibrium
P
$800
S
$600
2
Shortage
$400
S1
$200
D
2
4
6
8
Q
11
7. Which of the following is least likely to
result from rent controls set below the
equilibrium price for rental housing?
a. Shortages and black markets.
b. Deterioration of existing rental housing.
c. The supply of rental housing will increase
rapidly.
d. People will demand more apartments
than are available.
C. The supply curve will shift to the left, not
to the right, as suppliers produce fewer
rental units due to the lower price and
lower profits.
12
8. Suppose the equilibrium price set by supply
and demand is lower than the price ceiling
set by the government. The result will be
a. a shortage.
b. that quantity demanded is equal to
quantity supplied.
c. a surplus.
d. a black market.
B. The purpose of price ceilings is to set a
maximum price by law. If it is set lower than
the equilibrium price, it will have no effect
on the equilibrium price as illustrated on the
next page.
13
P
Rent Control Results in a
Shortage of Rental Units
S
$800
$600
$400 Price ceiling
Shortage
D
$200
2
4
6
8
Q
14
9. A good that provides external benefits to society
has
a. too few resources devoted to production.
b. too many resources devoted to its production.
c. the optimal resources devoted to its
production.
d. not provided profits to producers of the good.
A. An external benefit is an unintentional
byproduct of the market..
15
10. Pollution from cars is an example of a (an)
a. harmful opportunity cost.
b. negative externality.
c. production dislocation.
d. none of the above.
B. A negative externality imposes costs on
third parties when drivers discharge
pollution into the air, they erode the
quality of life of others.
16
11. Which of the following is the best
example of a public good?
a. Pencils.
b. Education.
c. Defense.
d. Trucks.
C. None of the other answers fit the
definition of a public good. A public good
is something from which everyone benefits
and no one can be excluded.
17
12. A public good may be defined as any
good or service that
a. allows users to collectively consume
benefits.
b. must be distributed equally to all
citizens in equal shares.
c. is never produced by government.
d. answers a and c above.
A. Once a public good is provided, for
instance a road, everyone collectively
benefits from it.
18
END
19