CHAPTER 2 SUPPLY AND DEMAND

True/False and Explanation

Indicate whether the sentence or statement is true or false.
THE SAME
F 1. A perfectly competitive market consists of products that are all slightly
different from one another.

T 2. An oligopolistic market has only a few sellers.

F 3. The law of demand states that an increase in the price of a good decreases the
demand for that good.
demanded quantity
F 4. If apples and oranges are substitutes, an increase in the price of apples will
decrease the demand for oranges. increase

T 5. If golf clubs and golf balls are complements, an increase in the price of golf
clubs will decrease the demand for golf balls.

T 6. If consumers expect the price of shoes to rise, there will be an increase in the
demand for shoes today.

T 7. The law of supply states that an increase in the price of a good increases the
quantity supplied of that gop.435od.

F 8. An increase in the price of steel will shift the supply of cars to the right. TO THE LEFT
input price: giá tăng thì cost tăng
Multiple Choices --> cung giảm --> negative relationship

1. A perfectly competitive market has

a. firms that set their own prices.
b. only one seller.
c. at least a few sellers.
d. many buyers and sellers.
e. none of these answers.
2. The law of demand states that an increase in the price of a good
a. increases the supply of that good.
b. decreases the quantity demanded for that good.
c. decreases the demand for that good.
d. increases the quantity supplied of that good.
e. none of these answers.
3. The law of supply states that an increase in the price of a good
a. none of these answers.
b. increases the quantity supplied of that good.
c. increases the supply of that good.
d. decreases the demand for that good.
e. decreases the quantity demanded for that good
4. If an increase in consumer incomes leads to a decrease in the demand for camping
equipment, then camping equipment is
a. a normal good.
b. none of these answers.
c. an inferior good.
d. a substitute good.
e. a complementary good
5. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.
6. If the price of a good is above the equilibrium price,
a. there is a surplus and the price will rise.
b. there is a shortage and the price will fall.
c. there is a shortage and the price will rise.
d. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
e. there is a surplus and the price will fall.
7. If the price of a good is below the equilibrium price,
a. there is a shortage and the price will rise.
b. the quantity demanded is equal to the quantity supplied and the price remains
unchanged.
c. there is a shortage and the price will fall.
d. there is a surplus and the price will rise.
e. there is a surplus and the price will fall.
8. A decrease (leftward shift) in the supply for a good will tend to cause
a. an increase in the equilibrium price and quantity.
b. a decrease in the equilibrium price and an increase in the equilibrium quantity.
c. none of these answers.
d. a decrease in the equilibrium price and quantity.
e. an increase in the equilibrium price and a decrease in the equilibrium quantity.
9. Suppose there is an increase in both the supply and demand for personal computers. In the
market for personal computers, we would expect
a. the equilibrium quantity to rise and the equilibrium price to rise.
b. the equilibrium quantity to rise and the equilibrium price to fall.
c. the equilibrium quantity to rise and the equilibrium price to remain constant.
d. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
rise.
e. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous
10. Suppose there is an increase in both the supply and demand for personal computers.
Further, suppose the supply of personal computers increases more than demand for
personal computers. In the market for personal computers, we would expect
a. the change in the equilibrium quantity to be ambiguous and the equilibrium price to
fall.
b. the equilibrium quantity to rise and the equilibrium price to rise.
c. the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
d. the equilibrium quantity to rise and the equilibrium price to fall.
e. the equilibrium quantity to rise and the equilibrium price to remain constant.
 COMPLEMENTS
11. Which of the following statements is true about the impact of an increase in the price of
lettuce? demanded quantity
a. Both the demand for lettuce will decrease and the equilibrium price and quantity of salad
dressing will fall.
b.The supply of lettuce will decrease. supplied quantity --> supplied quantiy increase
c. The demand for lettuce will decrease. demanded quantity
d.The equilibrium price and quantity of salad dressing will fall.
e. The equilibrium price and quantity of salad dressing will rise.
12. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future.
What would we expect to happen to the equilibrium price and quantity in the market for wheat
today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase
13. If a small percentage increase in the price of a good greatly reduces the quantity
demanded for that good, the demand for that good is
a. income inelastic.
b. price inelastic.
c. price elastic.
d. unit price elastic.
e. income elastic.
14. In general, a steeper supply curve is more likely to be
a. price elastic.
b. none of these answers.
c. unit price elastic.
d. price inelastic
15. Which of the following would cause a demand curve for a good to be price inelastic?
a. The good is a luxury.
b. There are a great number of substitutes for the good.
c. The good is a necessity.
d. The good is an inferior good.
16. If the cross-price elasticity between two goods is negative, the two goods are likely to be
a. substitutes.
b. complements.
c. necessities.
d. luxuries.
17. Suppose that at a price of €30 per month, there are 30,000 subscribers to cable television in
Small Town. If Small Town Cablevision raises its price to €40 per month, the number of
subscribers will fall to 20,000. At which of the following prices does Small Town Cablevision
earn the greatest total revenue?
a. €0 per month
b. €30 per month
c. €40 per month
d. Either €30 or €40 per month because the price elasticity of demand is 1.0.
18. For a price ceiling to be a binding constraint on the market, the government must set it
a. above the equilibrium price.
b. below the equilibrium price.
c. precisely at the equilibrium price.
 d. at any price because all price ceilings are binding constraints
19. Suppose the equilibrium price for apartments is €500 per month and the government imposes
rent controls of €250. Which of the following is unlikely to occur as a result of the rent controls?
a. There may be long lines of buyers waiting for apartments.
b. Landlords may discriminate among apartment renters.
c. Landlords may be offered bribes to rent apartments.
d. There will be a shortage of housing.
e. The quality of apartments will improve.
20. A price floor
a. always determines the price at which a good must be sold.
b. sets a legal maximum on the price at which a good can be sold.
c. is not a binding constraint if it is set above the equilibrium price.
d. sets a legal minimum on the price at which a good can be sold.
21. The surplus caused by a binding price floor will be greatest if
a. demand is inelastic and supply is elastic.
b. supply is inelastic and demand is elastic.
c. both supply and de7.mand are elastic.
d. both supply and demand are inelastic.
22. Which of the following workers would be most likely to find it more difficult to get a job
after a rise in the minimum wage rate?
a. A teenage worker with few qualifications.
b. A manual worker with fifteen years of work experience.
c. A professional worker with a university degree.
d. All three are equally likely to find it difficult to get a job.
23. Within the supply and demand model, a tax collected from the buyers of a good shifts the
a. supply curve downward by the size of the tax per unit.
b. supply curve upward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. demand curve downward by the size of the tax per unit.
24. Within the supply and demand model, a tax collected from the sellers of a good shifts the
a. demand curve downward by the size of the tax per unit.
b. supply curve downward by the size of the tax per unit.
c. demand curve upward by the size of the tax per unit.
d. supply curve upward by the size of the tax per unit
25. Which of the following takes place when a tax is placed a good?
a. a decrease in the price buyers pay, an increase in the price sellers receive, and a decrease
in the quantity sold
b. an increase in the price buyers pay, a decrease in the price sellers receive, and an
increase in the quantity sold
c. a decrease in the price buyers pay, an increase in the price sellers receive, and an
increase in the quantity sold
d. an increase in the price buyers pay, a decrease in the price sellers receive, and a decrease
in the quantity sold

Writing exercises

1. The X market is given as follow

P 120 100 80 60 40 20
Qd 0 100 200 300 400 500
Qs 750 600 450 300 150 0

**Demand equation: Qd = aP + b
With a = deltaQd/ deltaP
 Hệ số gốc nhân cho Giá cân
bằng/lượng cân bằng
Qd= 600-5P Qs= 15/2P-150
a. Perform the Supply and Demand of X as equations.
Ep= -5x(60/300)=-1 --> lấy trị tuyệt
b. Compute the equilibrium price and quantity of X
đối
c. Compute the demand and Supply Elasticity at the Equilibrium Es= 15/2 x (60/300)=3/2 =1.5
2. The Demand and Supply of Y market is given as: Es>Ep
cung Qs P = 1/50Q + 5 and P = -1/100Q +20 cầu Qs
Qs=50P-250 a. Compute the equilibrium price and quantity of Y Qe=500, Pe=15
b. Assumed that the government sets the price P = 17,5. Is this price price ceiling or price
floor? How the market would be? Calculate the quantity demanded and supplied at this
legal price Pg>Pe ==>Pg =17.5 is the price floor ==> the market would be surplus Qs=625
c. Assumed that the government sets the tax on the sellers with t = 2$/unit instead of Qd=250
setting the legal price as the above. Compute the new equilirium price and quantity after
tax. Does the buyer or seller have a heavier burden of the tax?

Which of the following increases quantity supplied,increases quantity demanded, and decreases the price that
consumers pay?
a. the passage (áp thuế) of a tax on a good
b. the repeal (bãi bỏ) of a tax on a good
c. the imposition of a binding price floor
d. the removal of a binding price floor

Price floor> Pe---> Qs up, Qd down

2b/
Quantity in surplus=625-250=375
c/ Đường cung có thuế nằm cao hơn đg cung ban đầu (tax on seller)
Lấy đg cung ban đầu cộng thêm t
Step1: Define the new supply equation (supply equation after Tax)
--> lấy hàm cung ban đầu cộng thêm với thuế (t=2)
Ps2 = Ps1+ t= (1/50Q+5)+2=1/50Q+7

Equilibrium price Ps2=Pd => 1/50Q+7=-1/100Q+20

Q=433.33 = 1300/3
Price Buyer pay: P=47/3=15.67
Cách trả lời 1:
tính hệ số co giãn, chit có thể xác định ng mua chịu/ít nhiều hơn chứ ko ít/nhiều hơn bao nhiêu
C2:
The price the seller receive after tax : 47/3 -2=41/3=13.66
the buyer's tax burden: 47/3 - 15=2/3=0.67$
The seller's tax burden:
- cách 1: 15-41/3=1.34=4/3
- cách 2: tax - the buyer's tax burden = 2-2/3 = 4/3
The buyer's taxburden < the seller's tax burden <=> 2/3 < 4/3
==> sellers have a heavier burden of the tax