Question 1

Suppose the equilibrium price for chocolate bars is $0.50 and the equilibrium quantity is 120 bars per week. If a fire destroys half of the chocolate bar factories, reducing the supply at each price by half, what will happen to the new equilibrium price and quantity?

Accepted Answer

The equilibrium price will increase and the equilibrium quantity will decrease.

Question 2

Why does the new equilibrium quantity of chocolate bars, after a fire destroys half of the production facilities, NOT fall to exactly half of the original equilibrium quantity?

Accepted Answer

Because the price rises, causing quantity supplied to be higher than half at the new equilibrium.

Question 3

If the government decreases the GST (a tax collected by sellers) on chocolate bars, what is the likely effect on the equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 4

If the price of other snacks increases, what is the expected effect on the market for chocolate bars?

Accepted Answer

Demand for chocolate bars increases, leading to a higher equilibrium price and quantity.

Question 5

If fire insurance premiums for chocolate bar factories increase, what is the likely effect on the supply curve for chocolate bars?

Accepted Answer

The supply curve shifts left, increasing equilibrium price and decreasing equilibrium quantity.

Question 6

A consumer says, 'Coffee is essential to me. I have exactly two cups each morning no matter what.' What does this imply about the price elasticity of demand for coffee for this consumer?

Accepted Answer

Demand is perfectly inelastic.

Question 7

Suppose the cost of running large cars increases due to higher gas and insurance prices. What is the expected effect on the market for small cars?

Accepted Answer

Demand for small cars increases, shifting the demand curve right.

Question 8

In 2010, Reebok running shoes sold 2,000 pairs at $59.99. Now, at $99.99, 3,500 pairs are sold. Does this observation alone disprove the Law of Demand?

Accepted Answer

No, because other factors (such as changes in tastes or income) could have shifted the demand curve.

Question 9

Each winter, the price of fresh fruit in Canada rises. What is the primary reason for this seasonal price increase?

Accepted Answer

Supply of fruit decreases in winter, shifting the supply curve left.

Question 10

Why might the government avoid setting a legal maximum price (price ceiling) for fresh fruit at the low summer price during winter?

Accepted Answer

Because it would lead to a shortage of fruit in winter.

Question 11

If the supply curve for chocolate bars is given by $Q_S = 2P$ and the demand curve is $Q_D = 200 - 2P$, what is the equilibrium price?

Accepted Answer

$P = 50$

Question 12

Suppose the government imposes a price ceiling below the equilibrium price for chocolate bars. What is the most likely outcome?

Accepted Answer

A shortage of chocolate bars.

Question 13

If the demand for a good is perfectly inelastic, what will happen to the equilibrium quantity if the supply decreases?

Accepted Answer

Equilibrium quantity will decrease and price will remain unchanged.

Question 14

If the supply of chocolate bars increases due to technological improvements, what is the expected effect on equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases and equilibrium quantity increases.

Question 15

Which of the following best describes the Law of Demand?

Accepted Answer

As the price of a good increases, the quantity demanded decreases, ceteris paribus.

Question 16

If the government imposes a tax on sellers, which curve shifts and in which direction?

Accepted Answer

The supply curve shifts left.

Question 17

Suppose the demand for chocolate bars is $Q_D = 200 - 2P$ and the supply is $Q_S = 3P$. If the government sets a price floor at $P = 60$, what is the resulting surplus?

Accepted Answer

$Q_S - Q_D = 180 - 80 = 100$

Question 18

If the price of a substitute good increases, what happens to the demand curve for the original good?

Accepted Answer

It shifts to the right.

Question 19

Which of the following is a likely result if the government sets a maximum price for fruit below the equilibrium price during winter?

Accepted Answer

A shortage of fruit.

Question 20

If the supply of a good decreases while demand remains constant, what happens to equilibrium price and quantity?

Accepted Answer

Equilibrium price increases and equilibrium quantity decreases.

Microeconomics: Supply and Demand Problem Set Guidance

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