Chapter 4 Study Guide

7. Refer to Table 4-1. Whose demand does not obey the law of demand?
 * d. an increase in income.
 * e. an increase in the price of a complimentary good.
 * e. an increase in the price of a complimentary good.
 * a. Aaron’s
 * b. Angela’s
 * c. Austin’s
 * d. Alyssa’s
 * e. None of them conform to the law of demand.

8. Refer to Figure 4-2''. ''The movement from D to D’ could be caused by
 * a. an increase in price.
 * b. a decrease in the price of a complement.
 * c. a technological advance.
 * d. a decrease in the price of a substitute.
 * e. a decrease in the price.

9. Refer to Figure 4-3''. ''The movement from point A to point B on the graph is caused by

10. Which of the following changes would not shift the demand curve for a good or service?
 * a. a decrease in the price of the good.
 * b. an increase in the price of the good.
 * c. an advance in technology.
 * d. a decrease in input prices.
 * e. a decrease in the demand for the good.
 * a. a change in income
 * b. a change in the price of the good or service
 * c. a change in expectations about the future price of the good or service
 * d. a change in the price of a related good or service
 * e. a change in the number of buyers in the market for that good or service

11. Refer to Figure 4-4. At a price of $15,
 * a. there would be a shortage of 200 and the law of supply and demand predicts that the price will fall from $15 to a lower price.
 * b. there would be a shortage of 600 and the law of supply and demand predicts that the price will rise from $15 to a higher price.
 * c. there would be a shortage of 400 and the law of supply and demand predicts that the price will rise from $15 to a higher price.
 * d. there would be a surplus of 400 and the law of supply and demand predicts that the price will fall from $15 to a lower price.
 * e. there would be a surplus of 400 and the law of supply and demand predicts that the price will rise from $15 to a higher price.

12. Refer to Figure 4-5. Suppose the events depicted in Panel (a) and Panel (c) were illustrated on a single graph. A definite result of the two events combined would be 13. Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market?
 * a. an increase in the equilibrium quantity.
 * b. an increase in the equilibrium price.
 * c. an increase in the equilibrium price and equilibrium quantity.
 * d. a decrease in the equilibrium price and equilibrium quantity.
 * e. a decrease in the equilibrium price.
 * a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
 * b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.
 * c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
 * d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
 * e. Equilibrium quantity and equilibrium price would both be ambiguous.

14. Which of the following events would cause both the equilibrium price and equilibrium quantity of number two potatoes (an inferior good) to increase? 15. What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell?
 * a. an increase in the supply of number two potatoes
 * b. a decrease in the supply of number two potatoes
 * c. a decrease in the incomes of number two potato consumers
 * d. an increase in the incomes of number two potato consumers
 * e. an increase in the price of number two potatoes
 * a. Price would fall and the effect on quantity would be ambiguous.
 * b. Price would rise and the effect on quantity would be ambiguous.
 * c. Quantity would fall and the effect on price would be ambiguous.
 * d. Quantity would rise and the effect on price would be ambiguous.
 * e. Price would rise and quantity would rise.

Answers

 * B
 * A
 * A
 * D
 * A
 * D
 * A
 * D
 * D
 * D
 * A
 * Q
 * A
 * Q
 * A

Free Response
1.
 * a. Using the information in the table, draw a correctly labeled graph of the market for flashlights. Make certain to label the equilibrium price and equilibrium quantity.
 * b. What are the equilibrium price and the equilibrium quantity?
 * c. Suppose the price is currently $5. What problem would exist in the market? What would you expect to happen to price?
 * d. Suppose the price is currently $2. What problem would exist in the market? What would you expect to happen to price?

2. Suppose we are analyzing the market for hot chocolate. Using a correctly labeled graph, illustrate the impact each of the following would have on demand or supply. Also, show how equilibrium price and equilibrium quantity would change.
 * a. Winter starts and the weather turns sharply colder.
 * b. The price of tea, a substitute for hot chocolate, falls.
 * c. The price of cocoa beans, an ingredient in making hot chocolate, decreases.
 * d. The price of whipped cream, a complimentary good for hot chocolate, falls.
 * e. A better method of harvesting cocoa beans is introduced.
 * f. The Surgeon General of the United States announces that hot chocolate cures acne.
 * g. Protesting farmers dump millions of gallons of milk, causing the price of milk, an ingredient in hot chocolate, to rise.
 * h. Consumer income falls because of a recession, and hot chocolate is considered a normal good.
 * i. Producers expect the price of hot chocolate to increase next month.
 * j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium.