Markets

Multiple Choice Questions

After watching the Markets video lecture, consider the question(s) below. Then “submit” your response.

Question

1. The supply and demand model assists in analyzing the:

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B.
C.
D.

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2. When the market for a good is in equilibrium, there is (are):

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B.
C.
D.

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3. A change in the quantity demanded of a good results from a change in the:

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B.
C.
D.

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4. Assume that hamburgers and ketchup are complements. If the price of hamburgers falls, demand for ketchup:

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B.
C.
D.

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5. Improvements in technology that reduce production costs cause the _____ curve to shift to the _____, indicating a(n) _____ in the amount _____ at each price point.

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B.
C.
D.

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6. Assume a farmer’s land is equally productive in growing corn or potatoes and is currently producing both. If the price of corn increases but the price of potatoes does not change, the farm’s supply curve for potatoes will:

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B.
C.
D.

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7. An increase in government subsidies for an industry, which reduces production cost, causes the market equilibrium price to _____ and the market equilibrium quantity to _____.

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B.
C.
D.

True/False Questions

After watching the Markets video lecture, consider the question(s) below. Then “submit” your response.

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1. An increase in consumer preference for a good shifts the demand curve to the left.

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B.

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2. As income increases, the demand curve for an inferior good shifts to the left.

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B.

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3. If the price of a resource required to produce a good increases, the supply curve will shift to the right, indicating that producers are inclined to produce more of the good at each price point.

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B.

Short Answer/Discussion Questions

After watching the Markets video lecture, consider the question(s) below. Then “submit” your response.

Question

1. Suppose consumers find two brands of breakfast cereal equally tasty and nutritious. Brand A increases its price but brand B does not. What will happen in the market, and how would this be depicted on the demand curves for each brand?
Suggested solution: With the increase in brand A’s price, consumers will buy less of that product, a reduction in the quantity demanded. This will be shown on brand A’s demand curve by a movement along its demand curve—the curve itself will not move. Consumers will buy more of brand B, an increase in demand. This will be depicted by a rightward shift in brand B’s demand curve. (Answers may vary.)

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2. Identify the factors that cause a change in the quantity supplied versus those that cause a shift in the supply curve.
Suggested solution: A change in the quantity supplied is caused by a change in the price of a good; the supply curve does not shift. A shift of the supply curve ( also called a change in supply) is caused by changes in factors other than price. These supply curve shifters include changes in (1) technology, (2) the prices of production resources, (3) the prices of substitute goods, (4) expectations, (5) the number of producers, and (6) taxes and subsidies. (Answers may vary.)

Question

3. Do the equilibrium price and quantity always move in the same direction when there is a change in demand or supply?
Suggested solution: No. For example, if there is a change in supply of a good that moves the supply curve to the right (and the demand curve remains stationary), the good’s equilibrium price will decline, but the equilibrium quantity will increase. A rightward movement of the supply curve would be caused by factors such as improvements in technology, declines in resource prices, reductions in taxes, or increases in subsidies causing a decline in production costs. (Answers may vary.)