Question

Answer the following:

1. A supply curve

Select one:

A. shows how much producers will be willing to sell at various prices.

B. shows what the price must be for producers to be willing to sell different amounts.

C. usually slopes up.

D. all of the above.

2. Improved technology reduces the cost of producing ibuprofen. Sales will increase and the equilibrium price will drop.

Select one:

A. True

B. False

3. A demand curve

Select one:

A. shows how much producers will be willing to sell at various prices.

B. shows what the price must be for producers to be willing to sell different amounts.

C. usually slopes up.

D. none of the above.

4. A drop in price might reflect an expansion of supply or a contraction in demand.

Select one:

A. True

B. False

5. The supply curve for physicians' services would decrease if

Select one:

A. office rents fall.

B. insurance coverage for physicians' services expands.

C. new regulations add costs.

D. none of the above.

6. Prices will rise if there is excess supply.

Select one:

A. True

B. False

Answer 1

1) answer-option D. All of the above

A supply curve shows various quantities of a commodity which the producers are willing to produce and sell at various possible prices during a particular period of time. In other words, it indicates what must be the prices of various quantities for producers to be willing to sell various quantities. More than price, higher is the quantity supplied and lower the price, lower is the quantity supplied by producers. Hence, supply curve is upward sloping indicating that at a higher price, more quantity producers are willing to supply and at a lower price, low quantity is being supplied.

2) answer-option A. True

An improvement in the technology will reduce the cost of ibuprofen. As such, suppliers will be willing to supply more as with reduced cost at the same price, the profit margin of producer will increase. As such supply will increase. As supply will increase, with demand remaining the same, there would emerge excess supply which will cause the equilibrium price to fall. Hence, price will drop.

False is incorrect because when supply increases, with demand remaining the same, excess supply will cause the equilibrium price to drop.

3) answer-option D. None of the above.

A demand curve shows various quantities of a commodity which consumers are willing to purchase at various possible prices during a particular period of time. More quantity is demanded at low price and less quantity is being demanded at high price. Hence, demand curve is downward sloping indicating that more quantity is being demanded at low price and less quantity is being demanded at high price.

Option A is Incorrect because demand curve shows various quantities which consumers are willing to purchase at various prices. It does not shows how much quantity producers are willing to produce and sell.

Option B is incorrect because demand curve shows various prices at which consumers demand and purchase various quantities of a commodity. It does not shows what price must be for producers to sell to be willing to sell different quantities.

Option C is incorrect because demand curve is not upward sloping but downward sloping. A downward sloping demand curve indicates that more quantity is being demanded at low price and less quantity is being demanded at high price.

4) answer-option B. False.

A drop in prices will reflect expansion in demand and contraction of supply. As price will fall, more quantity will be demanded by the consumers and quantity demanded will increase. An increase in quantity demanded when price of the commodity falls is known as expansion of demand. From the suppliers side, a drop in prices will reduce the profit margin of producer. Hence, when price will fall, quantity supplied by the producer will fall. When the quantity supplied falls with a fall in price of the commodity, it is known as contraction of supply.

Option A True is incorrect because a drop in prices will not causes expansion of supply and contraction of demand. As price will fall, the consumer will purchase more quantity. Hence, it will cause expansion of demand and not contraction of demand. When price will fall, producers profit margin will reduce. Hence they will supply less quantity when price will fall. As such it would cause contraction in supply and not expansion of supply.