Question

Use the following information for questions 17 and 18:

-Assume that the Louisville market for (automobile) tires is made up of many buyers and sellers. Answer the questions with respect to how these various events affect this market

17. Which of the following would best explain a decrease in equilibrium price of tires and an increase in equilibrium quantity of tires:

A. increase in supply

B. decrease in supply

C. decrease in demand

D. increase in both demand and supply

E. decrease in both demand and supply

18. Which of the following would not shift the demand curve for tires?

A. increase in the income of consumers within this market

B. decrease in the price of complements for tires

C. increase in the current (selling) price of tires

D. decrease in the expected (selling) price of tires

E. none of the above

Use the following information for questions 19-20:

-Assume that the equilibrium price of apples is $4 per unit in the winter and $2 per unit during the spring.

19. What is the direct effect of setting a $3 price ceiling on the winter market for apples?

A. there is an increase in the demand for apples during the winter

B. The quantity of apples exchanged in the winner will not change as a result of the ceiling

C. they will be a surplus of apples in the winter

D. there will be a shortage of apples in the winter

20. What is the direct effect of setting a $3 price ceiling on the spring market for apples?

A. there is a decrease in the demand for apples during the spring

B. The quantity of apples exchanged in spring will not change as a result of the ceiling

C. there will be a surplus of apples in the spring

D. There will be a shortage of apples in the spring

Answer 1

(17) In the question, it is mentioned that equilibrium price decreases and equilibrium quantity increases. So, this case is possible only when there in increase in supply.

Increased supply would cause the price to fall and the decreased price in return would cause increase in quantity demanded.

Seeing the other options, decrease in supply would lead to the reversed case. Also, increase and decrease in both demand and supply would make price indeterminate.

Therefore, the correct answer would be option (A).

(18) The demand curve shifts when the price remains same and there are changes in other factors like income, price of substitute goods or complimentary goods, taste ; habbit and preferences etc.

So, in the given question, the demand curve would shift for situations given in options (A), (B) and (D).

Therefore, the correct answer is option (C) . In this case, the the current price is increasing which would lead to upper movement on the same demand curve and wouldn't cause a shift.

(19) Price ceiling is a method generally adopted by government so that the price for a particular commodity would not rise above certain fixed point and this makes the product available to consumers or people which were unable to buy at the market or equilibrium price.

In the given question, the price ceiling for apples during winters is set below equilibrium price which means that apples can't be sold at price more than $3.

Since this price is lower than the equilibrium price, there will be an increase in demand for apples during winters.

Therefore, the correct option would be option (A).