Application of Supply and Demand

A government decides to set a price ceiling on bread of $2.40 so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What will be the price and quantity of bread purchased?

1. $2.40; 6,400

2. At the price ceiling of $2.40, there is a shortage of 1,600 and the quantity purchased will the lower of the quantity supplied and demanded which is 6,400.

A price ceiling when it is set ________ the equilibrium price creates ________.

1. below; excess demand

2. To be binding (prevent the market from reaching equilibrium) a price ceiling has to be set below the equilibrium price.

If the government sets floor prices for wheat or corn that guarantee farmers an above-market price for that product, the most probable result would be what?

1. overproduction.

2. The guaranteed price would most likely keep farmers in the market or even attract new ones.

   
   

A price floor attempts to keep prices ________.

1. higher than the equilibrium price.

2. Helping prices adjust is not the purpose of price floors.

Refer to the figure below. If the government sets a price ceiling of $4, there would be a(n):

1. shortage of 10 units

2. A shortage of 10 units would exist (15-5=10) (quantity demanded at a price of $4 - quantity supplied at a price of $4)

   
   

The country of Zanabar produces computers and produces them in a large quantity while the country of Abathana expertly produces cell phones in large quantities. In order for both countries to consume more desirable combinations of goods and services (computers and cell phones) they should

1. freely trade computers and cell phones to improve allocative efficiency.

   2. The quantity traded would depend on each country’s needs and preferences; an equal amount may not be the optimum for each country.

In a market with an upward sloping supply curve and a downward sloping demand curve, a price floor ________.

1. creates deadweight loss

2. Price floors create inefficiencies in the market and reduce social or total surplus.

   
   

Look at the graph provided. What area on the graph represents consumer surplus?

1. A

2. Look for the difference between the maximum price consumers would be willing to pay (as per the demand curve) and the price paid (equilibrium price)

Which of the following represents producer surplus?

1. B

2. This area represents total or social surplus.

   
   

What is total surplus area from the figure below?

1. $210

2. The sum of producer and consumer surplus make the total or social surplus or the area below the demand curve and above the supply curve.

   
   

After earthquakes hit the California coast and damaged tens of thousands of cars, there was a growing demand and need for automotive repair, glass replacement, dent repair and repainting. In the labor market for car repair, the demand would be represented by ________, while supply would be represented by ________.

1. automotive body shops and glass repair and replacement companies; automotive workers

2. In labor markets, the workers represent the supply and the firms represent the demand.

   
   

What effect over the last decade, has the increasingly efficient and inexpensive technology of online college courses had on the college textbook market?

1. The demand for physical textbooks have steadily decreased, and as a result more publishing companies are having less demand for high skilled textbook editor jobs.

2. As the demand for textbook falls so does the demand for textbook editors.

   
   

A price floor attempts to keep prices ________.

1. higher than the equilibrium price.

2. A price floor, to be effective, would be above the equilibrium price and keep the price higher than the equilibrium price.

If the government sets floor prices for wheat or corn that guarantee farmers an above-market price for that product, the most probable result would be what?

1. overproduction.

2. Floor prices typically result in surpluses, where production is higher than quantity demanded by consumers.

   
   

Refer to the figure below. If the government sets a price ceiling at $20, there would be a(n):

1. shortage of 20 units.

2. A shortage of 20 units would exist (30-10=20) (quantity demanded at a price of $20 - quantity supplied at a price of $20).

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If the producer surplus is $1000 and the consumer surplus is $300, social surplus is ________.

1. $1300

2. The sum of producer and consumer surplus make the total or social surplus: $1000 + $300

If you were describing consumer surplus, you would say it is

1. the social surplus minus producer surplus.

2. Social or total surplus equal producer surplus + consumer surplus.

   
   

The Kreidler Kids company can produce swing sets for $1,000. Kendra wants a new swing set for her children and will pay $1,500 for it. Kendra finds the swing set she wants and pays $1,500 for it from the Kreidler Kids company. The Kreidler Kids company has

1. a producer surplus of $500.

2. Since the producer has a cost of $1,000 and sells the product at $1,500, there is a producer surplus of $500.

   
   

Consider the market for purple potatoes below and assume that a price ceiling of $30 is imposed by the government. Calculate the deadweight loss:

1. The deadweight loss is $5000.

2. It is calculated by taking the difference between the equilibrium quantity and the actual quantity demanded: (2500 - 2000) = 500 and multiplying it by the difference between the actual price ceiling and the price corresponding to the quantity produced: ($50 - $30) = $20 and dividing by 2 to get the area of the triangle.= $5,000

   
   

The country of Zanabar produces computers and produces them in a large quantity while the country of Abathana expertly produces cell phones in large quantities. In order for both countries to consume more desirable combinations of goods and services (computers and cell phones) they should

1. freely trade computers and cell phones to improve allocative efficiency.

2. Allocative efficiency refers to how well produced goods and services meet consumers needs and allowing Zanabar to trade computers for Abathana’s cell phones could allow consumers in both country to better satisfy their wants for both products.

   
   

As the information technology advances and consumers buy products requiring more and more technology, the wages of people with high level programming and other technical skills would

1. increase as the demand for high tech skills increases.

2. A change in the demand for a product like cell phones affects the demand for the resources that help produce the product (cell phone)

   
   

What effect over the last decade, has the increasingly efficient and inexpensive technology of online college courses had on the college textbook market?

1. The demand for physical textbooks have steadily decreased, and as a result more publishing companies are having less demand for high skilled textbook editor jobs.

2. As the demand for textbook falls so does the demand for textbook editors.

   
   

Last year Hawaii did not received many rain storms and with eight months of little rain there was low demand for umbrellas. This year however, there have been three months of big rain storms and only a few weeks of sunny weather. If you were to draw a graph depicting the changing market for umbrellas from last year to this, how would the new equilibrium price and quantity demanded compare to last year’s market?

1. With supply of umbrellas being constant, equilibrium price and quantity demanded increase for umbrellas compared to last year.

2. The equilibrium quantity would not decrease.

   
   

Robert is tasked with analyzing the market supply and demand for potatoes. Right now, he plotted the supply and demand curves for potatoes which you see in the graph. The current potato price is $70/ton. If the demand is at 200 million tons, what is the market situation for potatoes? How much must prices change before the market is in equilibrium?

1. There is a potato shortage. The price must increase by $40/ton to reach equilibrium.

2. The current price of $70 is below the equilibrium at $110.

   
   

The conditions of demand and supply are given in the table below. What is the equilibrium price?

1. $2.80

2. At this price, quantity demanded and supplied are not equal

   
   

Cocoa nibs from Nigeria last year was supplied at $9 per 10 pounds. This year the demand has increased and that same supply of Nigerian cocoa nibs is priced at $12 per 10 pounds. What will most likely happen to supply of Nigerian cocoa nibs this year?

1. There will be an increase in quantity supplied.

2. The supply will not fall - the information available does not indicate any change in the supply itself

In 2018 the NFL football team, the Carolina Panthers, have an owner accused of sexual harassment. The fans’ demand for team jerseys has dropped with the scandal this year. At about the same time the cost to manufacture the jerseys in China increased by 20%. Describe what the new equilibrium price and quantity is like compared with the prior year’s Panthers’ jersey market before the scandal and increased manufacturing costs?

1. Supply and demand curves have shifted to the left and the equilibrium quantity has decreased from 2017 but it is impossible to determine the effect on the equilibrium price.

2. As both supply and demand fall, quantity fals but price remains undetermined.

   
   

Excess demand will result in suppliers ________ prices, which encourages consumers to buy ________ .

1. raising prices; less

2. Check the impact of excess supply on quantity and price as the market tries to reach equilibrium

   
   

There is a tax rebate that everyone in the nation receives from the government of $1000. The market for laptops notices a shift because of this. What effect will this rebate have on the laptop market?

1. This will increase demand.

2. The tax rebate would not impact the supply

   
   

Tangi Tumolo carves and creates beautiful furniture on the island of Kiribati. Each month he takes the furniture to the capital city of South Tawara and sells what he can for the best prices he can. He also takes orders from people each month to build certain furniture indicating what is currently in demand. Each month the prices and products vary a bit depending on the demand in the market. Tangi enjoys the ebb and flow of the changing market as it keeps his business interesting and current with demand. Kiribati’s government takes a ‘hands off’ approach with the economy and the market is thriving on its own. Tangi Tumolo lives in what type of economy?

1. Free Market

2. There is no information provided to indicate a closed economy.

After the death of the queen in the country of Chedeux, her daughter, Chantasia became the new queen and ruler. Chantasia is known to be a ruler of the people, but as she gains more power from the populus, she begins to instigate sweeping changes to the economy and government, all in the name of helping the ‘most downtrodden among us’. One of her first actions is to enforce a command economy to control all aspects of the country and regulate its wealth. As one of the queen’s subjects, you’ve seen the changes she made. Which of these actions would be in line with this new command economy she is creating?

1. Chantasia creates a new government body called the Ministry of Planning which will set wages, prices and production targets to reach each month.

2. These measures do not increase the control of the government over the economy.

If an increase in the price of Nike shoes increases the demand for Adidas shoes, this means that

1. Nike shoes and Adidas shoes are substitutes.

2. Whether goods and inferior or superior/normal has to do with how purchases respond to changes in income.

   
   

The downward slope of a demand curve illustrates the pattern that as ________ decreases, ________ increases.

1. price; quantity demanded

2. The demand curve does not represent quantity supplied.

   
   

Miriam owns a small shop selling custom headbands and accessories. Last month, she sold 335 headbands for $10 each. According to the law of demand, what quantity might Miriam expect to sell if she drops the price to $6?

1. 415

2. If the price is reduced, the expected quantity demanded would not fall.

Which of the following data sets depicts the correct version of the above quantity Demand graph representing the number and price of watches. The x-axis shows quantity and the y-axis shows price.

Analyze the following diagram:

You own an auto dealership that has recently received many five star customer reviews at online review sites stating you sell quality cars and are very trustworthy. The diagram represents your demand curve before the online reviews. You find that the positive online reviews increase the demand by 20 cars at any given price. What two points will the new demand curve probably pass through?

1. ($20,000, 120) and ($15,000, 220)
   
   

Complete the following sentence: If people think that the price of televisions will decrease in the near future, that belief may cause a(n)

1. decrease in the demand for televisions today.

2. The demand would not increase

   
   

If a technology change reduces a company’s production costs, it will

1. shift the supply curve to the right.

2. Reduced production cost would not increase demand

   
   

Lian is a production analyst at the cardboard box manufacturer Flexpac. Last year, because of an increase in online shopping, shipping companies have increased the use of boxes for shipping. Management has charged Lian with generating a supply curve graph to illustrate the rise in price and supply of their boxes. These are the figures Lian discovered and put in a table. If you were assisting Lian, what steps would you tell her to take next?

Plot these points on a graph sloping up to the right with price on the y-axis and quantity supplied on the x-axis.

The operations vice president is adjusting the production quantities for the upcoming month of March for the coal company. Last month the price of a ton of coal was $45, and it has now increased to $64 per ton. According to the law of supply, what would be a rational response of the VP of operations in adjusting his coal output with the change in the market price?

1. Increase output and hire more workers.

2. As the price of coal increases, the firm is not likely to reduce quantity supplied.

The regional soda company in Michigan, Faygo, has recently run viral advertisements online and has increased their prices and number of supplied sodas to regional grocery stores. The graph of Faygo’s supply schedule is shown below.

Which supply schedule is correct for creating Faygo’s soda supply curve graph?