Question

1. Which of the following would cause the supply of steel to decrease?
   a) a decrease in price per unit of steel
   b) a decrease in the wage rate of steel workers
   c) an increase in the number of steel producers
   d) a decrease in the expected future price of steel by sellers
   e) none of the above is correct

Use the following supply and demand schedule for Questions 2-3:

           P                
           ========================
           $10       50       46
           15       49       47
           20       48       48
           25       47       49
           30       46       50
           35       45       51
           40       44       52

2. What is the equilibrium price of this product?

   a) $10
   b) $20
   c) $30
   d) $40
   e) none of the above is correct

3. Suppose the government imposes a price ceiling of $10 per unit. Accordingly,

   a) there would be a surplus of 4 units.
   b) 46 units of this good would be purchased.
   c) 50 units of this good would be purchased.
   d) both a) and c) are correct
   e) none of the above is correct

4. Assume that carrots are a normal good. If consumer income declines at the same time    that    production costs for carrots decrease, then the equilibrium price will _____ and the    equilibrium quantity will _____.

   a) increase; be indeterminate
   b) be indeterminate; decrease
   c) increase; increase
   d) decrease; decrease
   e) decrease; be indeterminate

5. Assume the same situation as in Question 4. This time, however, economists anticipate that    the demand effect will be smaller than the supply effect. Accordingly, the equilibrium       price of carrots will _____ and the equilibrium quantity will _____.

   a) decrease; increase
   b) be indeterminate; decrease
   c) increase; decrease
   d) decrease; decrease
   e) decrease; be indeterminate

Answer 1

1 e)

Decrease in supply is caused by a determinant of supply other than price. Decrease in quantity supplied is caused by changes in price of the good.

Choice a) This cause a change in quantity supplied as it is due to a movement along the supply curve. Wrong answer.

Choice b) A decrease in wage rate will cause supply to increase as the cost of production falls. It is wrong answer.

Choice c) Supply will increase. Wrong choice.

Choice d) Suppliers will increase supply today as the price is expected to fall in the future.

2) b) $20 since quantity demanded equals quantity supplied at this price.

3) c) as the quantity demanded has inverse relationship with price.

4) When consumer income declines, the demand curve shifts to the left ( decrease). When cost of production falls, supply curve shifts to the right (increase). When demand decreases and supply increases, the equilibrium price will fall but quantity is indeterminate.

Answer is e

5).a)

The equilibrium price will fall and the quantity will increase. The curve that shifts by the larger magnitude ( in this case, the supply curve) will determine the effect on the indeterminate quantity.