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True / False Questions
1.When gasoline prices rose in the early 2000s, this reduced the demand for SUVs. An economist would predict that SUV prices would decline or at least not rise as quickly.
A shift in demand leads to a reduction in prices.
2.Real-world experience shows that when weather conditions reduce crop yields, the price of agricultural products will fall.
The effect of reduced yield would be to shift supply to the left, resulting in a higher equilibrium price.
3.The effect of successful compliance with recycling regulation by homeowners on the market for recycled paper along with a concurrent rise in demand for products made with recycled paper is best shown by a shift to the right in the supply of and demand for recyclable paper and a certain drop in its price.
Successful compliance with recycling regulation and increased demand for products using recycled paper would have the described effects on supply and demand. A shift to the right in supply would lead to a certain drop in prices, but a shift to the right in demand would offset that decline leading to uncertain effects on price.
4.Trade sanctions imposed on Iraq that limited Iraq’s production of oil after the 1990 Gulf War on the oil market are best shown graphically with a price ceiling below equilibrium price.
Trade sanctions imposed on Iraq after the 1990 Gulf War on the oil market is best shown graphically with a shift to the left in the world supply of oil. Equilibrium price of oil rose as a consequence.
5.The minimum wage is an example of a price floor.
The minimum wage is the lowest wage a firm can legally pay its employees. This fits the definition of a price floor.
6.A price floor causes excess demand, resulting in the need to ration by some means other than price.
An effective price floor is a price above the equilibrium price so that there is excess supply NOT excess demand.
7.Given a downward sloping demand curve, a tax on the supply of a good will result in an increase in equilibrium price that is less than the amount of the tax.
At a price equal to the original price plus the tax, demanders are not willing to purchase the original quantity. At the original equilibrium price plus the tax, quantity supplied exceeds quantity demanded. To eliminate excess supply, suppliers lower the price until quantity demanded equals quantity supplied.
8.Tariffs increase equilibrium price and quantity.
Tariffs increase equilibrium price and reduce equilibrium quantity. A tariff shifts the supply curve to the left resulting in higher equilibrium price and lower equilibrium quantity.
9.When the person who chooses how much to purchase doesn’t have to bear the full cost, the quantity demanded tends to be higher.
The price to the consumer is lower, so the quantity demanded goes up.
Multiple Choice Questions
10.When hurricane Irene tore through the northeastern United States, destroying a significant portion of the Hudson Valley apple crop:
A.apple prices rose, and quantity sold rose.
B.apple prices declined, and quantity sold fell.
C.apple prices rose, and quantity sold fell.
D.apple prices declined, and quantity sold rose.
This is what happened in 2011, as described in the text.
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