Principles of Microeconomics
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Economics 111
|
Mr. Beck
|
SUNY College at Oneonta
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Chapter 5 Solutions
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Review Questions for Economics
111
1. An increase in price which results in a decrease
in the equilibrium quantity would be caused by a decrease
in supply. This is shown by a
shift
in the entire supply curve up and to the left. The correct answer
is b.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 1
2. A shift in a demand curve to the left is a decrease in demand.
It would be caused by people buying less of the good at the same price
of the good.
Choice A would be an increase in demand.
Choice B would be a decrease in supply because the costs of production
would increase.
Choice C would be an increase in demand because the prices of foreign,
substitute, goods has increased.
Choice D would be an increase in supply.
The correct answer is e,
None
of the above answers is correct.
Return to Question 2
3. For equilibrium quantity to remain constant despite
a decrease in price, there must be a dual shift in both the supply and
demand curves. A shift in only one of the two curves would always result
in a change in equilibrium quantity.
A decrease in price results from both an increase
in supply (a shift in the supply curve down and to
the right) and a decrease in demand (a shift
in the demand curve down and to the left). The correct answer is
c.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 3
4. A fall in people's incomes would decrease demand because
consumers would not be able to purchase as much beef. This would shift
the entire demand curve to the left and result in a decrease in both price
and quantity.
A fall in the price of a substitute good would also
decrease demand for beef because consumers would buy more chicken instead
of beef. This also would shift the entire demand curve to the left and
result in a decrease in both price and quantity.
The 2 effects reinforce each other and cause a resultant
decrease
in the equilibrium price and quantity of beef,
choice a..
The equilibrium point changes from E to N as illustrated
below:
Return to Question 4
5. A decrease in wages paid autoworkers would
enable auto makers to employ more labor, thereby increasing the supply
of automobiles produced. It would also decrease the costs of producing
automobiles, enabling auto makers profitably to supply their cars at lower
prices.
A decrease in wages results in an increase in supply,
shown as a shift in the entire supply curve down and to the right.
The correct choice is c,
the equilibrium quantity will increase and
the price will decrease.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 5
6. Consumers will buy more cameras because technology
has decreased the price of cameras. Cameras and film are complementary
goods. People will demand more film because more cameras are being sold.
The entire demand curve for film will shift up and
to the right, choice a.
This is illustrated by an increase in demand as show below. The equilibrium
point changes from E to N:
Return to Question 6
7. An increase in both the equilibrium price and
quantity of Nike sneakers would be caused by an increase in demand such
that consumers would be willing to buy more of the product even at a higher
price. This is illustrated by a shift in the entire
demand curve for Nike sneakers to the right,
choice b.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 7
8. A shift in the entire demand curve for butter to the
right represents consumers willing to buy more butter at the same price
of butter. A decrease in the price of butter,
choice c, on
the other hand, is shown by a movement down and to the right along
a given demand curve for butter. People buy more butter only because of
the decreased price of butter.
Return to Question 8
9. A decrease in income will cause a decrease in
demand. The entire demand curve will shift down and to the left. This would
result in a decrease in both price and quantity.
A decrease in the costs of production will cause
an increase in supply. Producers are able profitably to supply more of
the good at the same price. The entire supply curve will shift down and
to the right. This would result in a decrease in price and an increase
in quantity.
Combining the 2 effects yields a reinforcing decrease
in price, but the effect on quantity is indeterminate One event would cause
quantity to decrease and the other event would cause quantity to increase.
No information is provided on which event has a stronger effect. Thus,
equilibrium quantity may increase, decrease, or remain constant.
The correct answer is choice c,
the equilibrium price will decrease, but the
effect on quantity is indeterminate.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 9
10. An improvement in the technology of producing aluminum
results in an increase in supply. The entire supply curve shifts to the
right. More aluminum can be supplied profitably at the same price of aluminum.
The higher price of steel, a substitute good, will
cause some consumers to change their consumption from steel to aluminum.
This will increase the demand for aluminum, shifting the entire demand
curve for aluminum to the right. Consumers want to buy more aluminum at
the same price of aluminum.
The correct answer is choice a,
both
the supply and demand curves for aluminum shift to the right.
Return to Question 10
11. A decrease in price which results in an increase
in equilibrium quantity would be caused by an increase in supply. This
is shown by a shift in the entire supply curve to
the right, choice e.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 11
12. Choice A would increase demand, shifting the
entire demand curve to the right.
Choice B would decrease supply, shifting the entire supply curve to
the left.
Choice C would decrease demand as consumers buy more of the substitute
product, less expensive foreign cars.
Choice D would decrease demand because the higher price of gas, a complementary
good with automobiles, may discourage some purchases of automobiles.
The correct answer is thus e,
None
of the choices will shift the supply curve to the right.
Return to Question 12
13. For equilibrium price to remain constant despite
a decrease in quantity, there must be a dual shift in both the supply and
demand curves. A shift in only one of the two curves would always result
in a change in equilibrium price.
A decrease in quantity results from both a decrease
in demand (shift in the demand curve to the left)
and a decrease in supply (shift in the supply
curve to the left).
The correct answer
is d. The equilibrium
point changes from E to N as illustrated below:
Return to Question 13
14. A government imposed price ceiling is only relevant
if it prevents the actual price from gravitating toward the equilibrium
price. Thus, a price ceiling set above the equilibrium price is irrelevant
because it does not prevent the equilibrium price from being achieved.
If a price ceiling is set below the equilibrium
price, it will result in a shortage because at the artificially low ceiling
price, supply will be less than demand. The correct choice is b,
as illustrated below:
Return to Question 14
15. An increase in income would cause an increase
in demand. The entire demand curve will shift up and to the right. This
would result in an increase in both price and quantity.
The government study questioning the safety of microwave
ovens would cause a decrease in demand. The entire demand curve will shift
down and to the left. This would result in a decrease in both price and
quantity.
Since the 2 events' effects on both price
and quantity are conflicting, the resultant effect on both
price and quantity is indeterminate. The correct choice is e.
It is unknown whether the
increase in demand is stronger than, weaker than, or equal to the
decrease in demand. The combined resultant shift in demand may be to the
right or to the left. It is even possible that the opposing shifts in demand
cancel out exactly so that there is no resultant change in the position
of the demand curve at all.
Return to Question 15
16. Aluminum and automobiles are complementary goods because
aluminum is used in the production of automobiles. Increased production
of automobiles involves an increase in demand for aluminum by automakers.
This will shift the entire demand curve for aluminum to the right.
An increase in the price of steel will decrease
the quantity demanded of steel. Since aluminum and steel are substitute
goods, this will cause an increase in demand for aluminum as some buyers
change from steel to aluminum. Consumers' additional demand for aluminum
will shift the entire demand curve for aluminum to the right, reinforcing
the shift caused by the increased production of automobiles.
An increase in demand will result in an increase
in both the equilibrium price and quantity of aluminum. The correct
choice is a.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 16
17. An increase in the price
of aluminum, a substitute good, choice d,
will cause some consumers to change from purchasing the higher priced aluminum
to buying steel. There will an increased demand for steel at the current
price of steel. This increased demand for steel is shown by a shift in
the entire demand curve for steel to the right. Essentially, a shift in
the entire demand curve for steel to the right is caused by anything other
than a decrease in the price of steel which causes consumers to buy more
steel.
Return to Question 17
18. Steel is used in the production of autos.
A decrease in the price of steel will decrease the costs of producing automobiles.
This decrease in costs means that automakers can profitably sell cars at
a lower price. The lower price will result in an increase in quantity demanded
of autos. The correct answer is c,
the equilibrium quantity will increase and
the price will decrease.
A decrease in costs of production is shown by an
increase in supply, a shift in the entire supply curve down and to the
right.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 18
19. A decrease in the price of computer printers
will increase the quantity demanded of printers. Since computer printers
are a substitute good for typewriters, some consumers will purchase printers
instead of typewriters. This represents a decrease in demand for typewriters
because, at the existing price of typewriters, fewer typewriters will be
demanded.
The correct answer is a,
only
the demand curve for typewriters shifts to the left.
Notice that there is no shift in the supply curve
for typewriters. The cost of producing typewriters has not changed and
typewriter manufacturers are still willing to produce the same number of
typewriters at the same price. However, the decreased demand for typewriters
will force the equilibrium price and quantity of typewriters to fall as
shown in the graph below. The equilibrium point changes from E to N.
Return to Question 19
20. Glass and automobiles are complementary goods
because glass is used in the production of automobiles. If fewer autos
are being produced, there will be a decrease in demand for glass. At the
same price of glass, less glass will be demanded. This decrease in demand
will cause a surplus of unsold glass to occur at the current price of glass.
Competition among glass producers will drive down the price of glass. At
a lower price, it is not as profitable to produce glass so there will be
a movement down and to left along the given supply curve of glass.
The correct choice is a,
there will be a decrease in both the equilibrium
price and quantity of glass.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 20
21. A surplus indicates that at the current price
there is excess supply; that is, supply is greater than demand. This can
only occur if the current price is above the equilibrium price (price Ph
on the graph below). Producers will compete with each other to reduce their
surplus by reducing their price.
As price falls, there will
be a movement down along the existing supply and demand curves,
choice b,
until the equilibrium price (Pe on the graph below) is reached. By definition,
at the equilibrium price, supply = demand and neither a surplus nor shortage
exists.
Return to Question 21
22. The removal of government established price ceilings
allows producers to increase the price toward the equilibrium price level.
This increase in price will cause a movement up along
the existing supply and demand curves for natural gas,
choice a. This
is illustrated on the graph below in which the price increases from Pc,
the artificially low ceiling price, to Pe, the equilibrium price level
at which supply = demand.
Return to Question 22
23. A shortage exists when supply is less than demand.
This occurs when the current price is below the equilibrium price. Competition
among consumers will bid up the price until the equilibrium price is reached.
At the equilibrium price the shortage will be eliminated because at the
equilibrium point supply = demand.
The correct choice is a,
there
will be a movement up along the existing supply and demand curves.
This
is illustrated on the graph below in which the price increases from Pl,
the low price at which a shortage exists, to Pe, the equilibrium price
level at which supply = demand.
Return to Question 23
24. An increase in wages will increase the cost of producing
Apple Macintosh computers. This will result in a decrease in supply. The
entire supply curve will shift up and to the left. Supply will shift up
because it will not be profitable to supply the same number of computers
unless Apple can raise the price to recover the increased production costs.
Supply will shift to the left because if Apple cannot raise the price of
its Macintosh computers, it will not be willing to employ as many of the
higher cost workers and its production will be reduced. The decrease in
supply would cause price to increase and quantity to decrease.
The increase in the price of IBM computers will
increase the demand for Apple Macintosh computers because IBM and Macintosh
consumers are substitute goods for some consumers. The increase in demand
is shown by a shift in the entire demand curve for Macintosh computers
up and to the right. This increase in demand would cause both price and
quantity to increase.
Combining the 2 effects yields a reinforcing increase
in price, but the effect on quantity is indeterminate One event would cause
quantity to decrease and the other event would cause quantity to increase.
No information is provided on which event has a stronger effect. Thus,
equilibrium quantity may increase, decrease, or remain constant.
The correct answer is choice b,
the equilibrium price will increase, but the
effect on quantity is indeterminate.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 24
25. For equilibrium price to remain constant despite an
increase in quantity, there must be a dual shift in both the supply and
demand curves. A shift in only one of the two curves would always result
in a change in equilibrium price.
An increase in quantity results from both an increase
in supply (a shift in the supply curve down and to
the right) and an increase in demand (a shift
in the demand curve up and to the right). The correct answer is
c.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 25
26. A minimum wage is a price floor. Employers may
not pay workers less than the minimum, but they may pay their workers more
than the minimum. A minimum wage set below the equilibrium wage
is irrelevant. It has no effect because workers will be paid the
equilibrium wage regardless if this minimum wage exists or not. Therefore,
removal of this low minimum wage will have no effect
on wages in this instance and the correct
answer is e,
None
of the above.
The illustration below shows the low minimum wage
below the higher actual equilibrium wage:
Return to Question 26
27. An increase in income would cause an increase
in demand. The entire demand curve will shift up and to the right. This
would result in an increase in both price and quantity.
A decrease in the price of chicken will increase
the quantity demanded of chicken. Since chicken is a substitute good for
beef, some consumers will purchase chicken instead of beef. This represents
a decrease in demand for beef because, at the existing price of beef, less
will be demanded. This would result in a decrease in both price and quantity.
The 2 events conflict. They create opposite
effects on both price and quantity. The first represents an increase in
demand and the second represents an opposite decrease in demand. Since
there is no information provided on which event has a stronger effect on
demand (or whether the effects are equally strong and exactly cancel out),
the correct answer is f,
the
effect on both equilibrium price and quantity is indeterminate.
Return to Question 27
28. A decrease in both equilibrium price and quantity
would be caused by a decrease in demand. The demand
curve has shifted to the left, choice b.
The equilibrium point
changes from E to N as illustrated below:
Return to Question 28
29. An increase in demand will cause both the equilibrium price and
quantity to increase. This is illustrated by the change in the equilibrium
point from E to N on the graph below:
The correct choice is c, from
1990 to 2000 the entire demand curve for gasoline shifted to the right.
Return to Question 29
30.
1. A decrease in the cost of raw materials would decrease the cost
of producing Apple Macintosh computers. This would result in an increase
in supply, illustrated by a shift in the entire supply curve down and to
the right. This would result in a decrease in price and an increase
in quantity.
2. A decrease in the price of a substitute good, Dell computers, will
increase competition and decrease the demand for Apple Macintosh computers.
This decrease in demand for Apple Macintosh computers is illustrated by
a shift in the entire demand curve for Apple Macintosh computers to the
left. This would result in a decrease in both price and quantity.
Combining the 2 effects yields a reinforcing decrease
in price, but the effect on quantity is indeterminate The first event would
cause quantity to increase but the second event would cause quantity to
decrease. No information is provided on which event has a stronger effect.
Thus, equilibrium quantity may increase, decrease, or remain constant.
The correct answer is choice d,
the
equilibrium price would decrease, but the effect on equilibrium quantity
is indeterminate.
The equilibrium point changes from E to N as illustrated
below:
Return to Question 30
31.
1. A decrease in household incomes would cause a decrease in demand,
illustrated by a shift in the entire demand curve for Ford Taurus automobiles
to the left. This would result in a decrease in both price and quantity.
2. The recommendation by Consumer Reports would cause an increase in
demand, illustrated by a shift in the entire demand curve for Ford
Taurus automobiles to the right. This would result in an increase in both
price and quantity.
Since the 2 events' effects on both price and quantity are conflicting,
the resultant effect on both equilibrium price and
quantity is indeterminate. The correct choice is f.
It is unknown whether the
increase in demand is stronger than, weaker than, or equal to the
decrease in demand. The combined resultant shift in demand may be to the
right or to the left. It is even possible that the opposing shifts in demand
cancel out exactly so that there is no resultant change in the position
of the demand curve at all.
Return to Question 31
32. The ability to copy music files has made CD-RW drives a popular
option when students purchase new computers. This has increased the demand
for CD-RW drives, shifting the demand curve for CD-RW drives to the right.
Note that there is no direct effect on the supply curve for CD-RW drives
as there has been no change in technology or the cost of producing the
drives.
The correct choice is a, Only
the demand curve for CD-RW drives shifts to the right.
Return to Question 32
33. A shift in the entire demand curve to the left represents a decrease
in demand. A decrease in demand occurs when something other than an increase
in price reduces demand for the item; that is, consumers will purchase
fewer units at the given, original price. An example of a decrease in demand
is choice e, Incomes
of U.S. consumers fall because of increased unemployment.
Note why the other choices are incorrect:
Choice A will cause an increase in supply of U.S. automobiles.
Choice B will cause an increase in demand for U.S. automobiles.
Choice C will cause a decrease in supply of U.S. automobiles.
Choice D will also cause a decrease in supply of U.S. automobiles.
Return to Question 33
34. An improvement in the technology of producing DVD players results
in an increase in supply. The entire supply curve shifts to the right.
More DVD players can be supplied profitably at the same price of DVD players
An increase in household incomes results in an increase in demand for
DVD players. More consumers can afford to purchase DVD players at the given,
original price.
The combined effect is choice a, Both
the supply and demand curves for DVD players shift to the right.
Return to Question 34
35.
1. A decrease in people's incomes would decrease the demand for Friedrich
air conditioners . This is illustrated by a shift in the entire demand
curve for Friedrich air conditioners to the left. This would result in
a decrease in both price and quantity.
2. A decrease in the price of a substitute good, Kenmore air conditioners,
will increase competition and decrease the demand for Friedrich air conditioners.
This decrease in demand for Friedrich air conditioners is illustrated by
a shift in the entire demand curve for Friedrich air conditioners to the
left. This would result in a further decrease in both price and quantity.
Since both events 1 and 2 reinforce the decrease in demand for Friedrich
air conditioners, the resultant effect is indicated by choice c,
Equilibrium
price and quantity would both decrease.
Return to Question 35
36. A surplus occurs when quantity supplied is greater than quantity
demanded. This will only be true when the current price is above the market-clearing
equilibrium price. Automatically, the price will adjust until the equilibrium
level is reached. In this case, the price will decrease
and the surplus will be eliminated, choice c.
The results are illustrated on the following graph in which the price decreases
from Ph to Pe and the equilibrium point E will be achieved:
Return to Question 36
37. If the existing price of $5 is below the equilibrium price
of $7 per unit, then a shortage exists. This is illustrated on the following
diagram in which, at $5, quantity supplied (which is less than 100 units)
is less than quantity demanded (which is greater than 100 units).
The correct choice is d, a
shortage exists because quantity supplied is less than 100 units per day
and quantity demanded is greater than 100 units per day.
Return to Question 37
38. For equilibrium price to remain constant despite a decrease in
quantity, there must be a dual shift in both the supply and demand curves.
A shift in only one of the two curves would always result in a change in
equilibrium price.
A decrease in quantity without a corresponding decrease
in price results from a combination of a decrease in demand (shift
in the demand curve to the left) which causes
both price and quantity to decrease and a decrease in supply (shift
in the supply curve to the left) which causes
price to increase, but quantity to further decrease..
The correct answer
is c. There
have been shifts in both the entire supply and demand curves to the left.
The equilibrium point changes from E to N as illustrated below:
Return to Question 38
39.
| |
1995
|
1998
|
|
Equilibrium Price
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$14/unit
|
$12/unit
|
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Equilibrium Quantity
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100 units
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150 units
|
The table indicates that, from 1995 to 1998, equilibrium price decreased
(from $14 to $12) and equilibrium quantity increased (from 100 to 150 units).
This would be caused by an increase in supply, a shift
in the entire supply curve to the right (choice
a).
1998's equilibrium point is down and to the right of 1995's equilibrium
point as illustrated on the following graph:
Return to Question 39
40. A decrease in the price of a competitive good, the SONY Playstation
2, would increase competition for Microsoft's Xbox and decrease the demand
for the Xbox. Some consumers, who were thinking about buying the Xbox,
may decide to purchase the SONY Playstation 2 instead. This decrease in
demand for Microsoft's Xbox would cause the entire demand curve for the
Xbox to shift down and to the left. There would be
a decrease in both the equilibrium price and equilibrium quantity of the
Xbox (choice a)
as illustrated on the graph below:
Return to Question 40
41. If Hollywood decides to release more movies in the DVD format,
this will make DVD players more attractive and will increase the demand
for DVD players. This is shown by a shift in the entire demand curve for
DVD players to the right.
However, if household incomes decrease, this will
have the exact opposite effect. The decreased income will mean fewer consumers
can afford DVD players. This will decrease the demand for DVD players and
is shown by a shift in the entire demand curve for DVD players to the left.
Since the 2 events have the exact opposite effect
and there is no information on which effect is stronger, there is no way
of knowing if the combined effect is to shift the demand curve for DVD
players to the right or to the left.
The correct answer is choice f,
the effect on both equilibrium price and quantity
is indeterminate.
Return to Question 41
42.
The above graph illustrates a situation in which the existing
price ($10) is greater than the equilibrium price ($7). Notice that at
$10, quantity supplied (illustrated by point B) is greater than 100 units
per day and quantity demanded (illustrated by point A) is less than 100
units per day. When quantity supplied is greater than quantity demanded,
a surplus exists. The correct choice is a.
Return to Question 42
43. From 1990 to 2000 the equilibrium price decreased (from $100 to
$80) and the equilibrium quantity also decreased (from 50 units per day
to 45 units per day). A change in both equilibrium price and quantity in
the same direction is caused by a shift in the entire demand curve. Since
both price and quantity decreased, a decrease in demand occurred and the
entire demand curve for good X shifted to the left,
choice d. This is illustrated by points E
and N on the following graph:
Return to Question 43
44. The Nintendo GameCube is a competitive, substitute, good for SONY's
Playstation 2. If the GameCube is popular, then this will decrease the
demand for playstation 2's. As illustrated on the graph below by points
E and N, a decrease in demand results in a decrease in both the equilibrium
price and equilibrium quantity of the Playstation 2, choice a.
Return to Question 44
45. As illustrated on the graph below, a government imposed price ceiling
(a maximum legal price such as Pl) set below the equilibrium price (Pe)
will result in a shortage because quantity supplied is less than quantity
demanded at the below-equilibrium price. The correct choice is a.
Note that a price ceiling (maximum legal price) set above the equilibrium
price will have no effect because in that case the price will automatically
adjust to the equilibrium level. A price may be below, but not above, the
maximum legal price imposed by the government.
Return to Question 45
46. A decrease in income will cause a decrease in demand, shifting
the entire demand curve to the left. This will cause both equilibrium price
and equilibrium quantity to decrease.
An increase in the cost of producing new homes will
cause a decrease in supply, shifting the entire supply curve to the left.
This will cause equilibrium price to increase and equilibrium quantity
to decrease.
Since both shifts result in a decrease in quantity,
equilibrium quantity will decrease.
However, the effect on equilibrium price is indeterminate
because the decrease in demand will cause price to decrease and the decrease
in supply will cause price to increase.
As illustrated by the shift from point E to point
N on the graph below, the correct choice is e,
quantity will decrease, but the effect on price is
indeterminate.
Return to Question 46
47. An increase in the price of Tylenol, a substitute good for Bayer
aspirin, will increase the demand for Bayer aspirin.
The government report confirming that taking aspirin
will reduce the risk of heart attack will also increase the demand for
Bayer aspirin.
Both effects reinforce each other. The increase
in demand for Bayer aspirin will shift the entire demand curve for Bayer
aspirin to the right. As illustrated by the shift from point E to point
N below, the resultant effect will be that the equilibrium
price and quantity of Bayer aspirin would both increase, choice
a.
Return to Question 47
48. Since steel is used in automobiles, the price of steel affects
the cost of producing automobiles. If the price of steel were to decrease,
then the cost of producing automobiles would decrease. A decrease in the
cost of producing automobiles will increase the supply of automobiles,
shifting the entire supply curve for automobiles
to the right. The correct choice is b.
This is illustrated by the shift from point E to point N on the graph below:
Return to Question 48
49. A decrease in consumer incomes will decrease demand for computers
because fewer consumers will be able to afford to purchase computers. The
decrease in demand will shift the entire demand curve for computers to
the left. This will result in a decrease in both
the equilibrium price and quantity of computers, choice a.
The effect is illustrated by the shift from point
E to point N on the graph below:
Return to Question 49
50. An increase in wages represents an increase in the cost of producing
Maxell discs. This will decrease the supply of Maxell discs and would be
shown by a shift in the entire supply curve to the left. This would result
in an increase in the equilibrium price and a decrease in the equilibrium
quantity.
An increase in the price of competing, substitute,
discs produced by Fuji would reduce competition and increase the demand
for Maxell discs. This would shift the entire demand curve for Maxell discs
to the right. This would result in an increase in equilibrium price and
an increase in equilibrium quantity.
Combining the 2 events results in an increase in
equilibrium price as both events cause price to increase.
However, the effect on equilibrium quantity is indeterminate
because the decrease in supply will cause quantity to decrease and the
increase in demand will cause quantity to increase.
As illustrated by the shift from point E to point
N on the graph below, the correct choice is b,
the equilibrium price of Maxell CD-R discs would
increase, but the effect on quantity is indeterminate.
Return to Question 50
51. A minimum wage set above the equilibrium wage would generate
a surplus of labor because the quantity supplied of labor would exceed
the quantity demanded. If the minimum wage were eliminated, then there
would be nothing any longer preventing the attainment of an equilibrium
wage at which the supply and demand curves for labor intersected. Therefore,
eliminating the minimum wage would simply cause a movement
down along the given supply and demand curves for labor, a movement
which would have been prevented by the previous high (above-equilibrium)
minimum wage. The correct choice is c.
Return to Question 51
52. An improvement in the technology of producing CD-RW drives would
increase the supply of CD-RW drives, shifting the entire supply curve to
the right. This would result in a decrease in equilibrium
price and an increase in equilibrium quantity, choice d.
This is illustrated by the shift from point E to point N on the graph below:
Return to Question 52
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