Econ Hw 4

1) Which of the following would not shift the demand curve for mp3 players?

a. a decrease in the price of mp3 players
b. a fad that makes mp3 players more popular among 12-25 year olds
c. an increase in the price of digital music downloads, a complement for mp3 players
d. a decrease in the price of satellite radio, a substitute for mp3 players

2) Each of the following is a determinant of demand EXCEPT
a. tastes.
b. production technology.
c. expectations.
d. the prices of related goods.

3) Which of the following might cause the demand curve for an inferior good to shift to the left?

a. a decrease in income
b. an increase in the price of a substitute
c. an increase in the price of a complement
d. None of the above is correct.

4) Today, producers changed their expectations about the future. This change

a. can cause a movement along a supply curve.
b. can affect future supply, but not today’s supply.
c. can affect today’s supply.
d. cannot affect either today’s supply or future supply.

5) If suppliers expect the price of their product to fall in the future, then they will

a. decrease supply now.
b. increase supply now.
c. decrease supply in the future but not now.
d. increase supply in the future but not now.

6) Suppose an increase in the price of rubber coincides with an advance in the technology of tire
production. As a result of these two events, the demand for tires

a. decreases, and the supply of tires increases.
b. is unaffected, and the supply of tires decreases.
c. is unaffected, and the supply of tires increases.
d. None of the above is necessarily correct.

7) Equilibrium quantity must decrease when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.
b. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.
d. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.

8) Equilibrium quantity must increase when demand

a. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply increase.
b. increases and supply does not change, when demand does not change and supply increases, and
when both demand and supply decrease.
c. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply increase.
d. decreases and supply does not change, when demand does not change and supply decreases, and
when both demand and supply decrease.

9) Equilibrium price must decrease when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply decreases, and
when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply increases, and
when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply increases, and
when demand increases and supply decreases simultaneously.

10) Equilibrium price must increase when demand

a. increases and supply does not change, when demand does not change and supply decreases, and
when demand decreases and supply increases simultaneously.
b. increases and supply does not change, when demand does not change and supply decreases, and
when demand increases and supply decreases simultaneously.
c. decreases and supply does not change, when demand does not change and supply increases, and
when demand decreases and supply increases simultaneously.
d. decreases and supply does not change, when demand does not change and supply increases, and
when demand increases and supply decreases simultaneously.

11) Saddle shoes are not popular right now, so very few are being produced. If saddle shoes become
popular, then how will this affect the market for saddle shoes?

a. The supply curve for saddle shoes will shift right, which will create a shortage at the current price.
Price will increase, which will decrease quantity demanded and increase quantity supplied. The new
market equilibrium will be at a higher price and higher quantity.
b. The supply curve for saddle shoes will shift right, which will create a surplus at the current price.
Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new
market equilibrium will be at a lower price and higher quantity.
c. The demand curve for saddle shoes will shift right, which will create a shortage at the current price.
Price will increase, which will decrease quantity demanded and increase quantity supplied. The new
market equilibrium will be at a higher price and higher quantity.
d. The demand curve for saddle shoes will shift right, which will create a surplus at the current price.
Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new
market equilibrium will be at a lower price and higher quantity.

12) The market for diamond rings is closely linked to the market for high-quality diamonds. If a large
quantity of high- quality diamonds enters the market, then the

a. supply curve for diamond rings will shift right, which will create a shortage at the current price. Price
will increase, which will decrease quantity demanded and increase quantity supplied. The new market
equilibrium will be at a higher price and higher quantity.
b. supply curve for diamond rings will shift right, which will create a surplus at the current price. Price
will decrease, which will increase quantity demanded and decrease quantity supplied. The new market
equilibrium will be at a lower price and higher quantity.
c. demand curve for diamond rings will shift right, which will create a shortage at the current price.
Price will increase, which will decrease quantity demanded and increase quantity supplied. The new
market equilibrium will be at a higher price and higher quantity.
d. demand curve for diamond rings will shift right, which will create a surplus at the current price.
Price will decrease, which will increase quantity demanded and decrease quantity supplied. The new
market equilibrium will be at a lower price and higher quantity.

13) Music compact discs are normal goods. What will happen to the equilibrium price and quantity of
music compact discs if musicians accept lower royalties, compact disc players become cheaper, more
firms start producing music compact discs, and music lovers experience an increase in income?

a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.

14) What will happen to the equilibrium price of new textbooks if more students attend college, paper
becomes cheaper, textbook authors accept lower royalties, and fewer used textbooks are sold?

a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.

15) New oak tables are normal goods. What would happen to the equilibrium price and quantity in the
market for oak tables if the price of maple tables rises, the price of oak wood rises, more buyers enter
the market for oak tables, and the price of the glue used in the production of the new oak tables
increased?

a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.

16) Pens are normal goods. What will happen to the equilibrium price of pens if the price of pencils
rises, consumers experience an increase in income, writing in ink becomes fashionable, people expect
the price of pens to rise in the near future, the population increases, fewer firms manufacture pens, and the wages of pen-makers increase?

a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.

17) New cars are normal goods. What will happen to the equilibrium price of new cars if the price of
gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable,
auto-workers accept lower wages, and automobile insurance becomes more expensive?

a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.

18) What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the
price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers
negotiate higher wages?

a. Price will fall, and the effect on quantity is ambiguous.
b. Price will rise, and the effect on quantity is ambiguous.
c. Quantity will fall, and the effect on price is ambiguous.
d. Quantity will rise, and the effect on price is ambiguous.

19) Which of the following sets of events must cause an increase in the price of a new house?

a. higher wages for carpenters, higher wood prices, increases in consumer incomes, higher apartment
rents, increases in population, and expectations of higher house prices in the future.
b. lower wages for carpenters, lower wood prices, increases in consumer incomes, higher apartment
rents, increases in population and expectations of higher house prices in the future.
c. lower wages for carpenters, higher wood prices, decreases in consumer incomes, higher apartment
rents, decreases in population and expectations of higher house prices in the future.
d. higher wages for carpenters, lower wood prices, decreases in consumer incomes, lower apartment
rents, decreases in population and expectations of lower house prices in the future.

20) What would happen to the equilibrium price and quantity of lattés if coffee shops began using a
machine that reduced the amount of labor necessary to produce steamed milk, which is used to make
lattés, and scientists discovered that coffee prevents heart attacks?

a. Both the equilibrium price and quantity would increase.
b. Both the equilibrium price and quantity would decrease.
c. The equilibrium price would increase, and the effect on equilibrium quantity would be ambiguous.
d. The equilibrium quantity would increase, and the effect on equilibrium price would be ambiguous.

21) Refer to Table 1. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also
suppose the following:
• x = 2.
• The current price of a sandwich is $5.00.
• The market quantity supplied of sandwiches is 10.
• The law of supply applies to the supply of sandwiches.

(The demand schedule below pertains to sandwiches demanded per week)
Price Harry’s Darby’s Jake’s
$3 3 4 3
$5 1 2 x

Then there is a
a. shortage of 5 sandwiches, and the price would be expected to rise from its current level of $5.00.
b. shortage of 5 sandwiches, and the price would be expected to fall from its current level of $5.00.
c. surplus of 5 sandwiches, and the price would be expected to rise from its current level of $5.00.
d. surplus of 5 sandwiches, and the price would be expected to fall from its current level of $5.00.

22) Refer to Table 1. Suppose Harry, Darby, and Jake are the only demanders of sandwiches. Also
suppose the following:
• x = 2.
• The current price of a sandwich is $3.00.
• The market quantity supplied of sandwiches is 4.
• The slope of the supply curve is 2.

(The demand schedule below pertains to sandwiches demanded per week)
Price Harry’s Darby’s Jake’s
$3 3 4 3
$5 1 2 x

Then there is currently a
a. shortage of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00.
b. shortage of 6 sandwiches, and the equilibrium price of a sandwich is $5.00.
c. surplus of 6 sandwiches, and the equilibrium price of a sandwich is less than $3.00.
d. surplus of 6 sandwiches, and the equilibrium price of a sandwich is $5.00.

24) Consider a market equilibrium price and quantity that would prevail without government
intervention. Suppose the government has decided that the price is too high and in order to reduce it is
deciding between i) a price control (a mandate such that the price can be no higher than a maximum
level which is lower than the original equilibrium price) and ii) a subsidy to the suppliers. In relation to
the original equilibrium,

a. In both cases, the quantity supplied falls, the quantity demanded increases, and a shortage (excess
demand) develops.
b. If price is regulated the quantity supplied falls, the quantity demanded increases, and a shortage
(excess demand) develops; if supply is subsidized the quantity supplied increases, the quantity
demanded increases, and there is no shortage.
c. In both cases the quantity supplied increases, the quantity demanded increases, and there is no
shortage.
d. If price is regulated the quantity supplied increases, the quantity demanded increases, and there is no
shortage; if supply is subsidized the quantity supplied decreases, the quantity demanded increases, and
a shortage (excess demand) develops.