Microeconomics Homework 2 - Questions

Homework 2 Please refer to the instructions online. 1. On his visit to Six Flags, John planned to spend $10 on a bag of popcorn for $8 and a bottled drink for $2. Later on he noticed the popcorns were on sale for $4 a bag, so John bought two bags of popcorns and a bottled drink. John's response to the lower price of popcorn can be best explained by: A. B. C. D. the substitution effect. the income effect. the price effect. a rightward shift in the demand curve for hamburgers. 2. Which of the following would not shift the demand curve for beef? A. B. C. D. New scientific study shows eating beef may raise one’s cholesterol level. the cost of raising cattle is lower. the pork producers launched a very successful commercial. the usual beef buyers have higher income. 3. When the price of product A gets lower, the demand curve for product B shifts to the right, then: A. B. C. D. A and B are both inferior goods. A and B are substitutes. A is an inferior good and B is a superior good. A and B are complementary goods. 4. Which of the following is likely to increase the gasoline demand today? A. B. C. D. Consumers expect that gasoline will be more expensive in the near future. Consumers expect that gasoline will be less expensive in the near future. SUVs is losing its popularity to hybrid cars. Public transportation is getting cheaper. 5. Which of the following is not held constant, when the point is moving along a demand curve? A. B. C. D. The price of the product for which the demand curve is relevant. The price expectations of consumers. The income of consumers. The price of substitute goods. 1 6. In crude oil production, the increasing marginal cost explains: A. B. C. D. the law of demand. the income effect. why the supply curve is upward sloping. why the demand curve is downward sloping. 7. An improvement in the production technology of auto industry will: A. B. C. D. increase equilibrium price of cars. shift the supply curve of cars to the left. shift the supply curve of cars to the right. shift the demand curve of cars to the left. 8. Because of unfavorably cold weather, the production of apples has substantially declined. This indicates the: A. demand for apples will necessarily increase. B. equilibrium quantity of apples will increase. C. amount of apples that will be supplied to the market at various prices has declined. D. price of apples will be lower. 9. Which of the following is not held constant, when the point moves along a supply curve? A. B. C. D. More firms are producing this product. Consumers expect a higher future price of this product. There is a technological improvement in the production of this product. The price of the product for which the supply curve is relevant. 10. Assume a drought in Florida reduces the supply of oranges. Oranges are used making orange juice and apple juice is substitute for orange juice. It can be expected the price of orange to: A. B. C. D. rise, the supply of orange juice to increase, and the demand for apple juice to increase. rise, the supply of orange juice to decrease, and the demand for apple juice to increase. rise, the supply of orange juice to decrease, and the demand for apple juice to decrease. fall, the supply of orange juice to increase, and the demand for apple juice to increase. 2 11. Other things equal, if the price of electronic circuit board, a key resource used to produce digital cameras, falls, the: A. B. C. D. supply curve of digital camera will shift to the right. demand curve of digital camera will shift to the right. supply curve of digital camera will shift to the left. supply curve of digital camera will not shift. Use the graph below to answer question 12 and 13 12. The diagram above is a market for coffee. What are the equilibrium price and quantity in the coffee market? A. B. C. D. $1.00 and 200. $1.60 and 130. $0.50 and 130. $1.60 and 290. 13. In the diagram above, a surplus of 160 units of coffee will exist in the market when the price is: A. B. C. D. $1.10, that is, $1.60 minus $.50. $1.60. $1.00. $0.50. 3 14. A market is in equilibrium when: A. B. C. D. there is no surplus of in the market. the market is at all prices above the crossing point between the supply and demand curves. the quantity supplied equals the quantity demanded. the market sees downward sloping demand curve and upward sloping supply curve. 15. A government-mandated increase in the price of smart phones will: A. B. C. D. increase the supply of smart phones and decrease the demand for them. increase the demand for smart phones and decrease the supply of them. increase the quantity supplied of smart phones and decrease the quantity demanded of them. decrease the quantity supplied of smart phones and increase the quantity demanded of them. Use graph below to answer question 16 16. The graph above is a market for shirts. At a price of $20, this market will experience a: A. B. C. D. shortage of 50 shirts. shortage of 100 shirts. surplus of 100 shirts. surplus of 50 shirts. 4 17. When the market price is above the equilibrium level, competition among sellers will: A. push down the price, increase quantity demanded, decrease quantity supplied, and thus reduce market surplus. B. raise the price, decrease quantity demanded, increase quantity supplied, and thus reduce market shortage. C. push down the price, decrease quantity demanded, increase quantity supplied, and thus increase surplus. D. raise the price, increase quantity demanded, decrease quantity supplied, and thus increase shortage. 18. In a competitive market, when the market price is initially below the equilibrium level, the price will: A. B. C. D. decrease, quantity supplied will increase, and quantity demanded will decrease. decrease, quantity supplied will both decrease, and quantity demanded. decrease, quantity supplied will decrease, and quantity demanded will increase. increase, quantity supplied will increase, and quantity demanded will decrease. 19. The market equilibrium price and quantity creates allocative efficiency in that: A. B. C. D. Whoever wants the product can get the product. marginal benefit equals marginal cost at market equilibrium. market equilibrium guarantees equitable distribution of the product. there in surplus in the market. Use graph below to answer question 20 5 20. The graph above shows the demand and supply conditions in a shirts market. Starting with D0, if the supply curve moves from S0 to S1, it means: A. B. C. D. the supply of shirt increases and equilibrium quantity decreases. the supply of shirt decreases and equilibrium quantity decreases. the quantity supplied increases. the supply increases and the price rises. 21. If the supply of touch pads decreases and the demand for them increases at the same time, then the market equilibrium: A. B. C. D. price will rise, but the equilibrium quantity can rise, fall, or remain unchanged. price will rise and the equilibrium quantity will fall. price and quantity both will increase. price and equilibrium quantity both will decline. Use graph below to answer question 22 6 22. Refer to the diagram for a shirt market, initially market supply and demand are S0 and D0. Now they both shift to the new positions as S1 and D1. In this market: A. B. C. D. the supply decreased and the equilibrium price increased. the demand increased and the equilibrium price decreased. the demand decreased and the equilibrium price decreased. the demand increased and the equilibrium price increased. Use the graph below to answer question 23 23. The graph above shows different market situation for cars, which panel shows the effect of higher wage for auto workers on the market for cars? 7 A. B. C. D. A only. B only. C only. D only. Use graph below to answer question 24 24. The graph above shows different market situations for software, which panel shows the effect of lower price of personal computers on the market for software? A. B. C. D. A only. A and D. B only. D only. Use the graph below to answer question 25 8 25. The graph above shows different market situation for corns, which panel shows the effect of a lower price of irrigation equipment on the market for corn? A. B. C. D. B only. C only. B and C. D only. 26. Price floors and ceiling prices: A. B. C. D. both will result in shortages. both will result in surpluses. will shift the supply and demand curves are government intervention with the rationing function of market price. 9 27. Refer to the diagram above. Government imposes rent control at the price of $5, which means: A. the price ceiling is set at $5 and market shortage of 40 will be created. B. the price floor is set at $5 and market shortage of 40 will be created. C. the price ceiling is set at $5 and market surplus of 40 will be created. D. the price floor is set at $5 and market surplus of 40 will be created. 28. Refer to the diagram above. Government imposes minimum wage regulation at the price of $9, which means: A. the price ceiling is set at $9 and market shortage of 40 will be created. B. the price floor is set at $9 and market shortage of 40 will be created. C. the price ceiling is set at $9 and market surplus of 40 will be created. D. the price floor is set at $9 and market surplus of 40 will be created. 10 29. Refer to the diagram. Rent controls are best illustrated by: A. price A. B. quantity E. C. price C. D. price B. 30. Refer to the diagram. By government law, minimum wage is best illustrated by: A. price A. B. quantity E. C. price C. D. price B. 11