Homework Set 3. 1 of 6 2/19/11 7:48 AM

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1 Homework Set 3 1. A(n) is a situation in which the quantity supplied is greater than the quantity demanded. A. surplus B. shortage C. equilibrium D. floor 2. A(n) is a situation in which the quantity demand is greater than the quantity supplied. A. surplus B. shortage C. equilibrium D. floor 3. A(n) is a situation in which the quantity demand is equal to the quantity supplied. A. surplus B. shortage C. equilibrium D. floor 4. A surplus is a situation in which the quantity supplied is the quantity demanded. A. greater than B. less than C. equal to D. smaller than 5. A shortage is a situation in which the quantity demanded is the quantity supplied. A. greater than B. less than C. equal to D. smaller than 6. An equilibrium is a situation in which the quantity demanded is the quantity supplied. A. greater than B. less than C. equal to D. smaller than 7. Imagine that a major car firm has been able to plan their production process to coincide with sales forecasts. As new inventory comes into the showroom, customers purchase it, and there is no unsold inventory, and no unfilled orders. How can we best describe this phenomenon? A. This is an example of a shortage, as the quantity supplied is less than the quantity demanded. B. This is an example of a surplus, as the quantity supplied is greater than the quantity demanded. C. This is an example of a market in equilibrium. D. This is an example of an inefficient market. 8. A surplus is A. a situation when the quantity supplied is greater than the quantity demanded. B. a situation in which the quantity demanded is greater than the quantity supplied. C. a situation in which the quantity demanded is equal to the quantity supplied. D. a situation in which the quantity demanded is parallel the quantity supplied. 9. A shortage is A. a situation when the quantity supplied is greater than the quantity demanded. B. a situation in which the quantity demanded is greater than the quantity supplied. C. a situation in which the quantity demanded is equal to the quantity supplied. 1 of 6 2/19/11 7:48 AM

2 D. a situation in which the quantity demanded is parallel the quantity supplied. 10. When there is a shortage in a market for a product, A. the price will rise. B. the price will fall. C. suppliers will increase their demand for the product. D. the price will not change. 11. When there is a surplus in a market for a product, A. the price will rise. B. the price will fall. C. suppliers will increase their demand for the product. D. the price will not change. 12. When the quantity supplied by producers equals the quantity demanded by consumers, there is A. a shortage and the price will fall. B. a surplus, and the price will rise. C. an equilibrium, and the price will not change. D. an equilibrium, and the price will rise. 13. If supply decreases, the equilibrium price will and the equilibrium quantity will. A. increase; decrease B. decrease; increase C. increase; increase D. decrease; decrease 14. If there is a significant increase in both supply and demand, we can be sure that A. nothing will change in price or quantity. B. the equilibrium price will increase. C. the equilibrium quantity will increase. D. the equilibrium quantity will decrease. 15. Market forces dictate that if there is a shortage A. prices will rise. B. prices will fall. C. quantity will decrease. D. the government will intervene. 16. Market forces dictate that if there is a surplus A. prices will rise. B. prices will fall. C. quantity will decrease. D. the government will intervene. 17. If demand decreases, the equilibrium price will and the equilibrium quantity will. A. increase; decrease B. decrease; increase C. increase; increase D. decrease; decrease Answer: D 18. What impact does a surplus have on prices? A. A surplus has no impact on prices. B. A surplus will push prices down. C. A surplus will push prices up. 2 of 6 2/19/11 7:48 AM

3 D. A surplus will not affect equilibrium. 19. What impact does a shortage have on prices? A. A shortage has no impact on prices. B. A shortage will push prices down. C. A shortage will push prices up. D. A shortage will not affect equilibrium. 20. Equilibrium occurs when the A. quantity supplied is greater than the quantity demanded. B. quantity demanded is greater than the quantity supplied. C. quantity demanded equals the quantity supplied. D. quantity demanded is less than the quantity supplied. 21. At the equilibrium quantity, A. there are some unexploited gains from trade, but no wasteful trades. B. there are no unexploited gains from trade, nor any wasteful trades. C. there are no unexploited gains from trade, but some wasteful trades. D. there are both unexploited gains from trade and wasteful trades. 22. Equilibrium quantity is the A. quantity at which the quantity demanded exceeds the quantity supplied. B. quantity at which the quantity demanded is less than the quantity supplied. C. quantity at which the quantity demanded is greater than the quantity supplied. D. quantity at which the quantity demanded is equal to the quantity supplied. Answer: D 23. A free market maximizes producer surplus and consumer surplus due to all of the following, except A. non-sellers and non-buyers are able to consume the good or service B. buyers are willing to pay more for the good than non-buyers. C. sellers are willing to sell the good at a lower price than non-sellers. D. there are no mutually profitable deals between sellers and buyers that don t take place. 24. Section: Equilibrium and the Adjustment Process Refer to the following diagram. When the price equals $4, there is a: A. surplus of 15 units. B. surplus of 30 units. C. shortage of 15 units. D. shortage of 30 units. Answer: D 25. A free market can be described by the equations Q = 180 3P and Q = P. What are the equilibrium conditions in this market (that is, find d s equilibrium P and Q) and what are the maximum gains from trade in this market? 3 of 6 2/19/11 7:48 AM

4 Answer: Equilibrium price is $46, and equilibrium quantity is 42. Total gains from trade are $ The following diagram shows the supply and demand for wheat. Part 1: Use the area tool provided to identify the producer surplus when the market is in equilibrium. Identify this area on the graph as area A. Part 2: Use the area tool provided to identify the consumer surplus when the market is in equilibrium. Identify this area on the graph as area B of 6 2/19/11 7:48 AM

5 The table below refers to the daily supply and demand schedule for pizza in a small college town. Part 1: Use the multi-point line tool to plot the demand curve (D) and the supply curve (S) for pizzas. Part 2: Use the double drop line to identify the equilibrium price and quantity of pizza (E). Part 3: Suppose that enrollment at the college increases and, as a result, the quantity of pizzas demanded at each price increases by 20 pizzas. Use the multi-point line tool to draw the new demand for pizza (D2). Part 4: Use a drop line to identify the new equilibrium price and quantity of pizza (E2). Price of pizza Quantity of pizza supplied (per day) Quantity of pizza demanded (per day) $ $ $ $ $ of 6 2/19/11 7:48 AM

6 The accompanying graph shows the supply and demand for dry cleaning services as the market was 10 years ago, with price and quantity indicated. The supply of dry cleaning services has decreased recently as more regulations to protect environmental quality have been added. Part 1: Use the copy tool to show how the supply has shifted. Label the new curve S2. Part 2: Use the drop line tool to indicate the new equilibrium price and quantity. Label this point E2. Part 3: Use an area tool to indicate the amount of consumer surplus at the new equilibrium. Label the area Consumer surplus. 6 of 6 2/19/11 7:48 AM