Module 7 - Supply and Demand: Changes in Equilibrium

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CYU#1 - For each of the following examples, how the indicated change affects supply or demand for the good in question and how the shift you describe affects equilibrium price and quantity.

a. As the price of gasoline fell in the United States during the 1990s, more people bought large cars.

b. As technological innovation has lowered the cost of recycling used paper, fresh paper made from recycled stock is used more frequently.

c. When a local cable company offers cheaper pay-per-view films, local movie theaters have more unfilled seats.

a. The decrease in the price of gasoline caused a rightward shift in the demand for large cars. As a result of the shift, the equilibrium price of large cars rose and the equilibrium quantity of large cars bought and sold also rose.
b. The technological innovation has caused a rightward shift in the supply of fresh paper made from recycled stock. AS a result of this shift, the equilibrium price of fresh paper made from recycled stock has fallen and the equilibrium quantity bought and sold has risen.
c. The fall in the price of pay-per-view movies causes a leftward shift in the demand for movies at local movie theaters. As a result of this shift, the equilibrium price of people who go to the movies also falls.

CYU#2 - Periodically, a computer chip maker like Intel introduces a new chip that is faster than the previous one. In response, demand for computers using the earlier chip decreases as customers put off purchases n anticipation of machines containing the new chip. Simultaneously, computer makers increase their production of computers containing the earlier chip in order to clear out their stocks of those chips.

DRAW two (2) diagrams of the market for computers containing earlier chip: (a) one in which the equilibrium quantity falls in response to these events and (b) one in which the equilibrium quantity rises. What happens to the equilibrium price in each diagram?

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MC#1 - Which of the following describes what will happen in the market for tomatoes if a salmonella outbreak is attributed to tainted tomatoes?
a. Supply will decrease and price will increase.
b. Supply will decrease and price will decrease.
c. Demand will decrease and price will increase.
d. Demand will decrease and price will decrease.
e. Supply and demand will both decrease.

d. Demand will decrease and price will decrease.

MC#2 - Which of the following will lead to an increase in the equilibrium price of product "X"? A(n)
a. increase in consumer incomes if product "X" is an inferior good
b. increase in the price of machinery used to produce product "X"
c. technological advance in the production of good "X"
d. decrease in the price of good "Y" (a substitute for good "X")
e. expectation by consumers that the price of good "X" is going to fall

b. increase in the price of machinery used to produce product "X"

MC#3 - The equilibrium price will rise, but equilibrium quantity may increase, decrease, or stay the same if
a. demand increases and supply decreases.
b. demand increases and supply increases.
c. demand decrease and supply increases.
d. demand decreases and supply decreases.
e. demand increases and supply does not change.

a. demand increase and supply decreases.

MC#4 - An increases in the number of buyers and a technological advance will cause
a. demand to increase and supply to increase.
b. demand to increase and supply to decrease.
c. demand to decrease and supply to increase.
d. demand to decrease and supply to decrease.
e. no change in demand and an increase in supply.

a. demand to increase and supply to increase.

MC#5 - Which of the following is certainly true if demand and supply increase at the same time?
a. The equilibrium price will increase.
b. The equilibrium price will decrease.
c. The equilibrium quantity will increase.
d. The equilibrium quantity will decrease.
e. The equilibrium quantity may increase, decrease, or stay the same.

c. The equilibrium quantity will decrease.

FRQ#2 - Draw a correctly labeled graph showing the market for cups of coffee in equilibrium. On your graph, show the effect of a decrease in the price of coffee beans on equilibrium price and equilibrium quantity in the market for cups of coffee.

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