Exam 2: Market Forces: Demand and Supply

In 1987 a 386 PC sold at a price of $6,995. Five years later, you could purchase essentially the same computer for $1,495. Today, you can purchase a faster Pentium for a fraction of the initial price of a slower 386 PC. a. Why have computer prices fallen so dramatically? b. What impact, if any, do you think the growing use of the Internet will have on the price of computers?

Which of the following is least likely to be a normal good?

Other things held constant, the greater the price of a good

Suppose there is a simultaneous increase in demand and decrease in supply, what effect will this have on the equilibrium price?

If an excise tax is imposed on a good, then the supply curve

In a competitive market, the market demand is Q^d = 60 - 6P and the market supply is Q^s = 4P. A price ceiling of $3 will result in a

The supply function for good X is given by Q_x^s = 1,000 + P_X - 5P_Y - 2P_W, where P_X is the price of X, P_Y is the price of good Y and P_W is the price of input W. If the price of input W increases by $10, then the supply of good X

When an effective price ceiling is in place

The minimum legal price that can be charged in a market is:

An ad valorem tax causes the supply curve to:

Recently, the Brazilian Association of Citrus Exports (Abecitrus) announced that orange production would be down 25 percent this year because of poor weather conditions, disease, and tree stress resulting from three straight bumper crops. What effect will the decreased production of oranges have on the demand for tomato juice?

When Iraq invaded Kuwait, the market price of crude petroleum jumped from $21.54 per barrel to $30.50 per barrel - an increase of almost 42 percent. Your boss is puzzled, because the price increase actually occurred before there was a physical reduction in the current amount of oil available for sale. a. Explain why the price of oil increased so rapidly. b. One year after the invasion, the price of oil fell to $21.32 per barrel, its prewar level. Explain why.

The federal government recently decided to raise the excise tax on hard liquor. a. Graphically illustrate the effects of this tax on the market for hard liquor. b. Would a $1 increase in the excise tax on liquor increase the equilibrium price of liquor by $1? Explain. c. How would the excise tax on hard liquor affect a beer distributor?

Which of the following is not a supply shifter?

Consider a market characterized by the following inverse demand and supply functions: P_X = 10 - 2Q_X and P_X = 2 + 2Q_X. Compute the surplus consumers receive when an $8 per unit price floor is imposed on the market.

Good Y is a complement to good X if an increase in the price of good Y leads to

Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to

Suppose market demand and supply are given by Q^d = 100 - 2P and Q^S = 5 + 3P. If a price ceiling of $15 is imposed, what will be the resulting full economic price?

The law of demand indicates that as the price of a good increases, the quantity that

If demand increases, then the