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Bringing Supply and Demand Together Chapter 4 Practice Questions Indicate the answer choice that best completes the statement or answers the question. 1. Ceteris paribus, if the market supply of a product increases, what will happen to the equilibrium quantity and price of the product? a. The quantity will decrease and the price will increase. b. The quantity will increase and the price will decrease. c. The quantity will decrease and the price will be indeterminate. d. The quantity will increase and the price will increase. 2. Are markets always in equilibrium? a. Yes, they are always in equilibrium because very few things tend to alter supply and demand. b. No, but if there is NO outside interference, they tend to move toward equilibrium. c. No, they are NOT always in equilibrium because they NEVER “settle down” to a stable price and quantity. d. Yes, they are always at the equilibrium point, or very close to it. 3. Which of the following statements best describes equilibrium in a market? a. At equilibrium, quantity demanded equals quantity supplied. b. Equilibrium is a tendency for price to change, a state of perpetual motion. c. At equilibrium, there will always be a surplus for consumers to purchase. d. At equilibrium, market forces NO longer apply. FIGURE 4-1 The diagram below represents the market for butter.

4. Refer to Figure 4-1. What is the per kilogram equilibrium price of butter? a. $1 b. $2 c. $3 Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions d. $5 5. Refer to Figure 4-1. What is the shortage or surplus of butter at a market price of $5 per kilogram? a. a shortage equal to 4000 kilograms of butter b. a surplus equal to 4000 kilograms of butter c. a surplus equal to 7000 kilograms of butter d. a shortage equal to 7000 kilograms of butter 6. Refer to Figure 4-1. If a price ceiling of $1 per kilogram is imposed, how many units of butter will be sold? a. 1000 b. 3000 c. 8000 d. 12 000 7. Refer to Figure 4-1. If a price floor of $4 per kilogram is imposed, how many units of butter will be sold? a. 3000 b. 4000 c. 5000 d. 7000 8. What will occur in the market when there is an excess quantity demanded of a product at the current price? a. The price will tend to rise. b. The price will tend to fall. c. Producers will reduce output and sales will fall. d. The price must be above the equilibrium price. TABLE 4-2 Price $16 $14 $12 $10 $8 $6

D1 7 10 13 15 18 20

D2 12 15 18 21 24 27

S1 17 15 13 11 9 7

S2 30 27 24 21 18 15

9. Refer to Table 4-2. Suppose D2 and S2 represent the demand and supply schedules in a particular market. What are the market’s equilibrium price and quantity? a. a price of $16 and a quantity of 12 units b. a price of $14 and a quantity of 15 units c. a price of $12 and a quantity of 6 units d. a price of $10 and a quantity of 21 units Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions

10. Which of the following government actions will always result in a shortage? a. The government imposes a price ceiling below the equilibrium price. b. The government imposes a price ceiling above the equilibrium price. c. The government imposes a price floor below the equilibrium price. d. The government imposes a price floor above the equilibrium price. 11. The most prominent news story is that medical research has found that eating apples leads to greater health benefits than were previously known. How would apple growers most likely react to this news? a. They would decrease the supply of apples. b. They would decrease the quantity of apples supplied. c. They would increase the quantity of apples supplied. d. They would increase the supply of apples. 12. If an effective rent ceiling is implemented, what would happen in the market for apartment rentals? a. The demand curve would NOT shift, resulting in a shortage of accommodations. b. The demand curve would shift to the left, leading to a decrease in price. c. The demand curve would NOT shift, resulting in a surplus of accommodations. d. The demand curve would shift to the right, leading to an increase in price. FIGURE 4-2

13. Refer to Figure 4-2. Which movement of equilibrium illustrates an increase in the quantity supplied, but NOT an increase in supply? a. from Point B to Point D b. from Point D to Point C Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions c. from Point D to Point B d. from Point C to Point D

14. Refer to Figure 4-2. Which movement of equilibrium illustrates a decrease in the quantity demanded, but NOT a decrease in demand? a. from Point D to Point C b. from Point D to Point B c. from Point C to Point D d. from Point B to Point D 15. Recently, heavy rainfall in Manitoba caused flood damage to many homes in the province. Shortly thereafter, the price of plywood rose significantly. What do these events suggest about the market for plywood? a. An increase in the demand for plywood caused the price of plywood to rise. b. A decrease in the supply of plywood caused the price of plywood to rise. c. A decrease in the demand for plywood caused the price of plywood to rise. d. An increase in the supply of plywood caused the price of plywood to rise. 16. Ceteris paribus, if the market demand for a product increases, what will happen to the equilibrium quantity and price of the product? a. The quantity will increase, and the price will be indeterminate. b. The quantity will be indeterminate, and the price will decrease. c. The quantity will decrease, and the price will decrease. d. The quantity will increase, and the price will increase. FIGURE 4-4

17. Refer to Figure 4-4. Starting with initial curves D0 and S0, which movement is consistent with an increase in both demand and supply? a. a movement from Point A to Point E Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions b. a movement from Point A to Point F c. a movement from Point A to Point C d. a movement from Point A to Point I

18. If the government wants to increase the minimum wage for workers, what type of policy should it implement? a. a price ceiling b. a price floor c. a price surplus d. a price quota 19. What action by the government will always cause a surplus? a. setting a price floor above the equilibrium price b. setting a price ceiling below the equilibrium price c. setting a price floor below the equilibrium price d. settting a price ceiling above the equilibrium price 20. On June 1, 2014, the Government of Ontario increased the provincial minimum wage from $10.25 to $11. Which of the following is NOT likely to occur? a. The higher wage will increase the supply of labour. b. There will be a surplus of labour at the new minimum wage rate. c. The number of unemployed will increase. d. More people will be hired at the higher wage rate.

FIGURE 4-1 The diagram below represents the market for butter.

Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions

21. Refer to Figure 4-1. If a price ceiling of $4 per kilogram is imposed, how many units of butter will be sold? a. 3000 b. 4000 c. 5000 d. 7000 TABLE 4-1 PRICE per QUANTITY DEMANDED large pepperoni pizza of large pepperoni pizzas $20 1000 units 18 2000 units 16 3000 units 14 4000 units 12 5000 units 10 6000 units 8 7000 units 6 8000 units 4 9000 units 2 10 000 units 22. Refer to Table 4-1. What is the equilibrium price? a. $12 b. $14 c. $16 d. $18

QUANTITY SUPPLIED of large pepperoni pizzas 7000 units 6500 units 6000 units 5500 units 5000 units 4500 units 4000 units 3500 units 3000 units 2500 units

23. Refer to Table 4-1. At a price of $18, what is the result in the market? a. a shortage of 6500 pizzas b. a surplus of 6500 pizzas Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions c. a shortage of 4500 pizzas d. a surplus of 4500 pizzas 24. Which of the following is occurring in the market when an excess quantity of a good is supplied at the current price? a. The market price must be the equilibrium price. b. The market price must be above equilibrium price. c. The market price must be below equilibrium price. d. The market price will tend to rise. TABLE 4-2 Price D1 D2 S1 S2 $16 7 12 17 30 $14 10 15 15 27 $12 13 18 13 24 $10 15 21 11 21 $8 18 24 9 18 $6 20 27 7 15 25. Refer to Table 4-2. Suppose D2 and S1 represent the demand and supply schedules in a particular market. What are the market’s equilibrium price and quantity? a. a price of $14 and a quantity of 15 units b. a price of $12 and a quantity of 5 units c. a price of $10 and a quantity of 21 units d. a price of $8 and a quantity of 15 units 26. Refer to Table 4-2. Suppose that D1 and S1 are the prevailing demand and supply curves for a product. Which of the following will happen in the market if the demand schedule changes from D1 to D2? a. The equilibrium price decreases from $12 to $10. b. The equilibrium quantity increases from 13 to 18. c. The equilibrium price increases from $12 to $14. d. The equilibrium quantity decreases from 15 to 13. 27. Refer to Table 4-2. Suppose that D2 and S1 are the prevailing demand and supply curves for a product. Which of the following will happen in the market if the demand schedule changes from D2 to D1? a. The equilibrium quantity increases from 13 to 18. b. The equilibrium price decreases from $14 to $8. c. The equilibrium quantity decreases from 15 to 13. d. The equilibrium price increases from $12 to $14. 28. Refer to Table 4-2. Suppose the demand schedule for Good A changes from D1 to D2 because the price of a related good, Good B, increases. Based on this information, what can we conclude? a. Good B is NOT related to Good A. b. Good B is likely a substitute for Good A. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions c. Good B is likely inferior to Good A. d. Good B is likely a complement to Good A. 29. Refer to Table 4-2. Suppose the demand schedule for Good A changes from D1 to D2 because the price of a related good, Good B, decreases. Based on this information, what can we conclude? a. Good B is likely a complement to Good A. b. Good B is NOT related to Good A. c. Good B is likely a substitute for Good A. d. Good B is likely inferior to Good A. 30. Refer to Table 4-2. Suppose the supply schedule for Good A changes from S 1 to S2 because the price of Good B increases. Based on this information, what can we conclude? a. Goods A and B are likely complements in consumption. b. Good B is NOT related to Good A. c. Goods A and B are likely substitutes in production. d. Goods A and B are likely substitutes in consumption. 31. Refer to Table 4-2. Suppose that D1 and S2 are the demand and supply schedules for Product A. What will result if the government imposes a price ceiling of $6? a. a 10-unit surplus b. a 5-unit surplus c. a 5-unit shortage d. a 10-unit shortage 32. Refer to Table 4-2. Suppose that D1 and S2 are the demand and supply schedules for Product A. What will be the result if the government imposes a price ceiling of $8? a. The ceiling will result in a surplus of 18 units. b. The ceiling will result in a shortage of 3 units. c. The ceiling will result in a surplus of 3 units. d. The ceiling will have NO impact on the quantity of Product A traded. 33. Refer to Table 4-2. Suppose that D1 and S2 are the demand and supply schedules for Product A. What is the result if the government imposes a price floor of $12? a. a shortage of 11 units b. a shortage of 5 units c. a surplus of 5 units d. a surplus of 11 units 34. Refer to Table 4-2. Suppose that D1 and S2 are the demand and supply schedules for Product A. What is the result if the government imposes a price floor of $10? a. Producers will have produced a surplus of 21 units. b. Consumers will be able to purchase as many units as desired at that price. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions c. Consumers will face a shortage of 6 units. d. Producers will be able to sell all the units that they desire to at that price. 35. When a shortage occurs at a particular price, what quantity will be sold at that price? a. the quantity supplied at that price b. the average of quantity supplied and quantity demanded c. the quantity demanded at that price d. the quantity supplied minus the quantity demanded 36. When a surplus occurs at a particular price, what quantity will be sold at that price? a. the average of quantity supplied and quantity demanded b. the quantity demanded at that price c. the quantity supplied at that price d. the quantity supplied minus the quantity demanded TABLE 4-3 Price (per litre of gasoline) $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 $0.80

Quantity Demanded (thousands of litres) 600 700 800 950 1200 1500 1800 2100 2400

Quantity Supplied (thousands of litres) 1000 900 800 700 600 500 400 300 200

37. Refer to Table 4-3. What is the equilibrium price of gasoline? a. $1.10 b. $1.20 c. $1.30 d. $1.40 38. Refer to Table 4-3. What will result if the government imposes a price ceiling of $1.20 per litre on gasoline? a. a 600 000 litre surplus b. a 250 000 litre surplus c. a 250 000 litre shortage d. a 600 000 litre shortage 39. A surplus exists in the market for Barbie dolls at the prevailing price. What will eliminate the surplus? a. A price decrease, decreasing the quantity supplied and increasing the quantity demanded. b. A price decrease, decreasing the supply and increasing the demand. c. A price increase, decreasing the supply and increasing the demand. d. A price decrease, increasing the quantity supplied and increasing the quantity demanded. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions 40. A shortage exists in the market for popsicles at the prevailing price. What will eliminate the shortage? a. A price decrease, increasing the quantity supplied and decreasing the quantity demanded. b. A price increase, increasing the quantity supplied and decreasing the quantity demanded. c. A price decrease, increasing the supply and decreasing the demand. d. A price increase, increasing the supply and decreasing the demand. 41. Assume that coffee and tea are substitutes for each other. If weather conditions cause a substantial portion of the available coffee crop to be destroyed, what will be the result? a. The price of tea will decrease. b. The supply of tea will increase. c. The demand for tea will increase. d. The price of coffee will decrease. FIGURE 4-2

42. Refer to Figure 4-2. Under what circumstances would a movement from D1 to D2 occur? a. when there is a decrease in the income of consumers and submarine sandwiches are inferior goods b. when the price of bread used to make submarine sandwiches increases c. when there is an increase in the income of consumers and submarine sandwiches are inferior goods d. when the wages of submarine sandwich makers decrease 43. If Canadian consumers decided to boycott coffee to protest the working conditions of farm workers, everything else being equal, what can we expect? a. The quantity of coffee supplied will fall. b. The demand curve for coffee shifts to the right. c. The supply of coffee will fall. d. The price of coffee will rise. 44. Which of the following events will cause the quantity of newspapers sold to decline? a. Newspaper prices are reduced. b. Newsprint becomes more expensive. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions c. Magazine prices rise. d. The printers’ union makes wage concessions. 45. When the demand and supply of grapes both increase at the same time, which of the following will likely result? a. The quantity of grapes bought and sold will rise. b. The price of grapes will fall. c. The quantity of grapes bought and sold will fall. d. The price of grapes will rise. 46. If both the supply and demand curves shift to the right, what equilibrium change can we expect? a. a decrease in the equilibrium quantity sold b. an increase in the equilibrium quantity sold c. an increase in the equilibrium price d. a decrease in the equilibrium price 47. If both the supply and demand for computer games decrease, what will happen to the equilibrium price and quantity of computer games? a. The price will be indeterminate and the quantity will rise. b. The price will be indeterminate and the quantity will fall. c. The price will fall and the quantity will also fall. d. The price will fall and the change in quantity will be indeterminate. 48. There is an increase in demand for personal computers at the same time their input costs fall. What can we expect? a. Price will fall, but the effect on quantity sold is uncertain. b. The quantity sold will decline, but the effect on price is uncertain. c. Price will rise, but the effect on quantity sold is uncertain. d. The quantity sold will increase, but the effect on price is uncertain. 49. If both market demand and supply increase simultaneously, what will happen to equilibrium quantity and equilibrium price? a. Quantity and price will both increase. b. Quantity will increase and price will be indeterminate. c. Quantity will be indeterminate and price will decrease. d. Quantity and price will both decrease. 50. If market demand decreases and market supply increases, what will happen to the equilibrium quantity and equilibrium price? a. Quantity will be indeterminate and price will increase. b. Quantity will decrease and price will be indeterminate. c. Quantity will increase and price will be indeterminate. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions d. Quantity will be indeterminate and price will decrease. 51. Suppose the equilibrium price of bread is $3.00 per loaf. If the government sets a price ceiling of $2.50 per loaf, which of the following will result? a. The quantity of wheat supplied will increase. b. The equilibrium price of wheat will fall and a shortage of wheat will be created. c. There will be a shortage of bread. d. The quantity of wheat demanded will decrease. 52. Which of the following is often the result of the imposition of a price ceiling on a market? a. an increase in investment in the industry b. a surplus c. a decrease in discrimination on the part of sellers d. a shortage FIGURE 4-5

53. Refer to Figure 4-5. At price PR, which of the following will occur? a. a surplus equal to 0QD minus 0QS b. a surplus equal to 0QS minus 0QD c. a shortage equal to 0QD minus 0QS d. a shortage equal to 0QS minus 0QD 54. Refer to Figure 4-5. What is occurring in the market for gasoline? a. A price ceiling has been imposed resulting in a surplus of gasoline. b. A price floor has been imposed resulting in a shortage of gasoline. c. A price floor has been imposed resulting in a surplus of gasoline. d. A price ceiling has been imposed resulting in a shortage of gasoline. 55. What occurs whenever a price floor is imposed above equilibrium price? a. The supply will increase due to a higher price until it just equals the quantity demanded. Prof. Surjeet Singh

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Bringing Supply and Demand Together Chapter 4 Practice Questions b. The demand will increase due to a higher price and a shortage will result. c. The quantity supplied will exceed the quantity demanded. d. The supply will increase due to a higher price and a surplus will result. TABLE 4-5 PRICE (per DVD) $21 20 19 18 17 16 15 14 13 12

QUANTITY DEMANDED of DVDs 1 000 000 units 2 000 000 units 3 000 000 units 4 000 000 units 5 000 000 units 6 000 000 units 7 000 000 units 8 000 000 units 9 000 000 units 10 000 000 units

QUANTITY SUPPLIED of DVDs 5 500 000 units 5 000 000 units 4 500 000 units 4 000 000 units 3 500 000 units 3 000 000 units 2 500 000 units 2 000 000 units 1 500 000 units 1 000 000 units