113-1 Economics I

Homework 4: Chapter 4
Class AYER
Short Answer Questions(40 points)
Name
3 Student ID # D1146038.
1. Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact each of
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the following would have on demand or supply. Also show how equilibrium price and equilibrium
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quantity would change.
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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 decreases.
d. A better method of harvesting cocoa beans is introduced.
e. Producers expect the price of hot chocolate to increase next month.
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f. Currently, the price of hot chocolate is $0.50 per cup above equilibrium.

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(a) (b) P

**
(c) (d)

P
(e) (f)

*PQ?surplus
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>
Quantity Demanded Quantity Supplied
Price
Per Month Per Month

Wi
$5 6,000 10,000
$4 8,000 8,000
$3 10,000 6,000
16010
$2 12,000 4,000
$1 14,000
a 2,000
2. Suppose the price is currently $5. What problem would exist in the market? What would you

surplus price will

expect to happen to price?
,
3. Suppose the price is currently $2. What problem would exist in the market? What would you

shortage price will d

expect to happen to price?

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True/False & Multiple Choice Questions Write down the answers in the box.
(60 points)

bababaa b
1 2 3 4 5 6 7 8 9 10
b
11 12 13 14 15 16 17 18 19 20

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1. It is not possible for demand and supply to shift at the same time.
a. True b. False
2. The market supply curve shows how the total quantity supplied of a good varies as input prices
vary, holding constant all the other factors that influence producers’ decisions about how much to
sell.
a. True b. False
3. When Mario's income decreases, he buys more pasta. For Mario, pasta is a normal good.
a. True b. False
4. If a higher price means a greater quantity supplied, then the supply curve slopes upward.
a. True b. False
5. Whenever a determinant of supply other than price changes, the supply curve shifts.
a. True b. False
6. A reduction in an input price will cause a change in quantity supplied but not a change in supply.
a. True b. False
7. If the producers of canned green beans expect the price of canned green beans to increase in the
future due to an increase in demand, they may put some of their current production into storage and
supply less in the market today.
a. True b. False
8. When the market price is above the equilibrium price, the quantity of the good demanded exceeds
the quantity supplied.
a. True b. False
9. When the market price is below the equilibrium price, suppliers are unable to sell all they want to
sell.
a. True b. False
10. The actions of buyers and sellers naturally move markets toward equilibrium.
a. True b. False
11. In a market, the price of any good adjusts until quantity demanded equals quantity supplied.
a. True b. False
Figure 4-1
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12. A decrease in the price of a good will
a. increase demand.
b. decrease demand.
c. decrease quantity demanded.
d. increase quantity demanded.
13. Refer to Figure 4-1. The movement from point A to point B on the graph is caused by
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A a. an increase in price.
b. a decrease in price.
c. a decrease in the price of a substitute good.
d. an increase in income.
14. You lose your job and, as a result, you buy fewer- iTunes music downloads. This shows that you

C
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consider iTunes music downloads to be

a. a substitute good.
b. an inferior good.
c. a normal good.
d. a complementary good.

d
15. Suppose you like to make, from scratch, pies filled with bananas and vanilla pudding. You notice
that the price of bananas has increased. As a result, your demand for vanilla pudding would
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a. decrease.
b. increase.
c. be unaffected.
d. change but you don't know how without more information.
16. Suppose there are six
- bait and tackle shops that sell worms in a lakeside resort town in Minnesota.
If we add the respective quantities that each shop would produce and sell at each of the six bait and

b
tackle shops when the price of worms is $2 per bucket, $2.50 per bucket, and $3 per bucket, and so
forth, we have found the
a. market demand curve.
b. market supply curve.
c. equilibrium curve.
d. surplus or shortage depending on market conditions.
17. If something happens to alter the quantity supplied at any given price, then
A a. we move along the supply curve.
b. the supply curve shifts.
c. the supply curve becomes steeper.
d. the supply curve becomes flatter.
18. Refer to Figure 4-7. At a price of $45, there would be a

C a. shortage of 600 units.

b. shortage of 300 units.
c. surplus of 600 units.
d. surplus of 300 units.

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19. Beef is a normal good. You observe that both the equilibrium price and quantity of beef have
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fallen over time. Which of the following explanations would be most consistent with this
observation?
a. Consumers have experienced an increase in income, and beef-production technology has
improved.
b. The price of chicken has risen, and the price of steak sauce has fallen.
c. New medical evidence has been released that indicates a negative correlation between a
person's beef consumption and life expectancy.
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d. The demand curve for beef must be positively sloped.
Figure 4-7

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b
20. Suppose that demand for a good increases and, at the same time, supply of the good decreases.
What would happen in the market for the good?
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

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ambiguous.