test 2
1) A demand curve will shift to the right:
Option A
if the own price of the good decreases;
Option B
if the price of a complement increases;
Option C
to regain market equilibrium after a positive supply shock.
Option D
if it is a normal good and the income increases.
Answer a: it is a price change, so movement along the curve and not a shock
Answer b: it is a negative horizontal demand shock, so demand shock to the left.
Answer c: price mechanism ensures recovery, ie movements along the curve
Answer d: Increase in income for a normal good leads to positive demand shock, so demand shock to the right
So answer d D
2) Sugar cubes are produced on the basis of cane sugar and are complementary to coffee for the consumer. What effect does a decrease in the price of coffee have on the market in sugar cubes when world prices for cane sugar rise at the same time?
Option A
price and the quantity increase with certainty.
Option B
The price certainly increases, but the quantity effect cannot be determined with certainty.
Option C
The quantity is certainly increasing, but the price effect cannot be determined with certainty.
Option D
Neither the price effect nor the quantity effect can be determined with certainty.
The easiest way to solve this is to make a sketch of the situation as described in the exercise. In such a figure, you combine a positive demand shock (as a result of the price drop in the coffee market) and a negative supply shock (as a result of the rise in world prices of cane sugar). The combination of the two creates a new equilibrium where the price is certainly higher. In terms of quantity, we cannot determine with certainty what the effect of the two shocks was.B
3)Due to a campaign by the Ministry of Health for a healthier diet, the demand for French fries is decreasing. At the same time, flooding increases farmers' production costs for harvesting potatoes. What are the effects of these effects on the French fries market, assuming that potatoes are a necessary raw material for French fries?
Option A
The quantity drops with certainty, the price effect cannot be determined with certainty.
Option B
The price drops with certainty, the quantity effect cannot be determined with certainty.
Option C
The price and the quantity increase with certainty.
Option D
The price and the quantity drop with certainty.
The best way to solve the question is to sketch the chips market. in this market a combination of two shocks takes place. A negative demand shock and a vertical supply shock. As a result of these shocks, we get a new equilibrium where quantity is certainly lower, but where price effect cannot be determined with certainty.A
4)A promotional campaign for public transport is decreasing the demand for car traffic and consequently the demand for petrol. At the same time, a Middle East peace agreement will lead to falling crude oil prices and consequently lower gasoline production costs. What is the impact of this on the petrol market?
Option A
Both the equilibrium price and the equilibrium quantity certainly rise.
Option B
Both the equilibrium price and the equilibrium quantity certainly fall.
Option C
The equilibrium quantity certainly falls and the change in the equilibrium price cannot be determined with certainty.
Option D
The equilibrium price certainly falls and the change in the equilibrium quantity cannot be determined with certainty.
Draw the gasoline market and indicate the supply and demand shock:
Promotion campaign for public transport causes a drop in demand for petrol: negative demand shock
lower gasoline production costs: positive supply shock.
Both shocks cause the price to drop. So price effect can be determined with certainty. Quantity effect not as positive shock causes quantity increase, negative shock causes quantity decrease.
So answer d.D
5) Suppose the figure below shows the market for traditional books. In that market, an increase in the price of e-books ceteris paribus causes the market equilibrium to a change:
Option A
from point C to point D;
Option B
from point B to point D;
Option C
from point B to point A;
Option D
from point C to point A.
E-books are a substitute for traditional books. an increase in the price of e-books leads to a decrease in the demand for e-books and an increase in the demand for traditional books. It is a positive demand shock. So there can only be a movement from B to D.B
6)Spaghetti sauce is produced on the basis of tomatoes and complements pasta for consumers. What effect does a price drop of pasta on the market of spaghetti sauce have when world prices for tomatoes rise at the same time?
Option A
Both the price and the quantity increase with certainty.
Option B
The price certainly increases, but the quantity effect cannot be determined with certainty.
Option C
The quantity is certainly increasing, but the price effect cannot be determined with certainty.
Option D
Neither the price effect nor the quantity effect can be determined with certainty.
Best way to solve this question is by drawing the spaghetti sauce market. There is a combination of shocks, a positive demand shock (as a result of the price decrease of pasta) and a negative supply shock (as a result of rising world prices for tomatoes). Based on this combination of shocks, we learn that the price is certainly higher in the new market equilibrium, but that with regard to the new quantity it cannot be stated with certainty whether it has increased or decreased due to the old market equilibrium.B
7)The mild temperatures and the spring sun have led to a huge supply of lettuce among Belgian suppliers. Meanwhile, the demand for lettuce from other countries, such as Poland, the Czech Republic and especially Germany, has almost completely disappeared. What effect do these events have on the market for Belgian lettuce?
Option A
Both the price and quantity increase with certainty;
Option B
The price is certainly rising, but the quantity effect cannot be determined with certainty;
Option C
The quantity is certainly increasing, but the price effect cannot be determined with certainty;
Option D
It can be said with certainty that the price will fall, but the quantity effect is uncertain.
Sketch the Belgian lettuce market. There is a combination of a positive supply shock (as a result of mild weather) and a negative demand shock (as a result of the loss of demand from other countries). In the new market equilibrium we can say that the equilibrium price will be lower in any case, but we cannot make any statements regarding the equilibrium quantity.D
8)The financial and economic crisis has hit Greece hard. The income of the average Greek has fallen by as much as 30% since the outbreak of the crisis. Suppose the figure below shows the Greek market for an inferior good). In that market, the drop in income for the average Greek led to a change in the market equilibrium:
Option A
from point D to point B;
Option B
from point A to point C;
Option C
from point C to point A;
Option D
from point A to point D.
The income of the average Greek has fallen. Demand for inferior goods will increase. It is therefore a positive demand shock. Supply function does not change. There are 2 possible answers based on the figure. Either we go from A to C or from B to D. Only the first solution is between the 4 possibilities. So from A to C. Answer b.B
9) A number of important olive regions, such as Italy and Spain, had an exceptionally warm and dry spring. The harvest of olives was therefore lower than usual, which drives up the price of olives. What is the impact on the olive oil market if you know that Russia, normally a large consumer of olive oil, has simultaneously banned imports of olive oil from the EU?
Option A
the quantity certainly decreases while the price effect cannot be determined with certainty;
Option B
both the price and the quantity decrease with certainty;
Option C
the price certainly increases, while the quantity effect cannot be determined with certainty;
Option D
both the price and the quantity increase with certainty.
Sketch the olive oil market. There is a combination of two shocks. A negative supply shock (as a result of too hot weather) and a negative demand shock (boycott Russia). This gives us a new market equilibrium where the equilibrium quantity is lower anyway, the price effect cannot be determined with certainty. so answer a.A
10)
Jan's maximum willingness to pay for a fishing net is equal to 100 euro. When the price of a fishing net equals 20 euros, Jan will buy 4 fishing nets. Assume Jan's inverse demand function for fishing nets is linear. What is the correct expression for its inverse demand function?
Option A
P = 100 – 20 Q
Option B
Q = 100 – 4 P
Option C
Q = 25 – ¼P
Option D
P = 25 – ¼ Q
Answers b and c cannot be correct, since they are not inverse demand functions. Only answers a and d can therefore still be correct. You can find the correct inverse demand function by entering the points (20,4) and (100,0) in p = a - b q (a and b are the unknowns). This then gives the answer, answer a: p = 100 - 20q.A
11)More intensive use of GPS (Global Positioning System) in cars will lead to ceteris paribus:
Option A
a decrease in the equilibrium price and an increase in the equilibrium quantity of road maps.
Option B
a decrease in the equilibrium price and a decrease in the equilibrium quantity of road maps.
Option C
an increase in the equilibrium price and an increase in the equilibrium quantity of road maps.
Option D
an increase in the equilibrium price and a decrease in the equilibrium quantity of road maps.
Feedback
GPS and road maps are substitutes in consumption. So if more GPS will be used, it will lead to a negative demand shock in the road map market. This then causes a decrease in the equilibrium quantity and a decrease in the equilibrium price. So answer bB
12)Due to the outbreak of bird flu, there was a negative demand shock in the poultry meat market. Which of the following statements is correct?
Option A
The negative demand shock causes the equilibrium price and equilibrium quantity to increase.
Option B
The negative demand shock causes the equilibrium price and equilibrium quantity to decrease.
Option C
The negative demand shock causes the equilibrium price to increase and the equilibrium quantity to decrease.
Option D
The negative demand shock causes the equilibrium price to decrease and the equilibrium quantity to increase.
The outbreak of bird flu creates a negative demand shock (first impact is on quantity). Answers c and d are therefore already incorrect. As a result of that negative demand shock, both equilibrium price and equilibrium quantity will fall. So answer b.B