Supply and Demand Review

In a market, the equilibrium condition is given by the following:

• quantity demanded = quantity supplied.

• quantity demanded > quantity supplied.

• the ratio of quantity demanded to quantity supplied equals the number of sellers.

• the ratio of the quantity demanded to the quantity supplied equals the number of buyers.

If sellers want to sell more products than buyers are willing to purchase, we know that:

• the current price is less than the equilibrium price.

• quantity demanded exceeds quantity supplied.

• the current price is greater than the equilibrium price.

• the demand curve will likely increase.

In free markets, surpluses lead to:

• lower prices.

• higher prices.

• stable prices.

• unexploited gains from trade.

In free markets, shortages lead to:

• lower prices.

• higher prices.

• surpluses.

• unexploited gains from trade.

Imagine a market represented by a typical X shaped supply and demand diagram. When the market is at equilibrium,

• consumer surplus equals producer surplus.

• every trade that creates both consumer and producer surplus occurs.

• sellers with the highest costs are able to sell to the buyers with the lowest valuations.

• the price buyers pay is lower than the price sellers receive.

Suppose a fungus wipes out the tomato crop in the southeast. What will happen in the tomato market?

• The supply of tomatoes will decrease, leading to a lower equilibrium quantity.

• The demand for tomatoes will increase, leading to a lower equilibrium quantity.

• The demand for tomatoes will decrease, leading to a higher equilibrium quantity.

Which of the following would NOT lead to a decrease in the price of domestic automobiles?

• a decrease in the price of foreign-made automobiles

• an economic recession, which decreases consumer income

• an increase in the wages paid to union auto workers

• an increase in the number of domestic automakers

Suppose that ground beef and steak are substitutes for one another. If the price of ground beef increases, what will happen in the market for steak?

• The demand for steak will increase.

• The supply of steak will increase.

• The demand for steak will decrease.

• The supply of steak will decrease.

Many home buyers use mortgages to purchase new homes. What effect does an increase in interest rates have on the market for new homes?

• The supply of new homes increases, decreasing the price of new homes.

• The supply of new homes decreases, increasing the price of new homes.

• The demand for new homes increases, increasing the price of new homes.

• The demand for new homes decreases, decreasing the price of new homes.

If demand decreases, then the market price will be _____ at the new equilibrium point.

• higher

• lower

• the same

• either higher or lower