Question

Suppose that demand for a good increases and, at the same time, supply of the good decreases. What would happen in the market for the good?

	a.	Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.
	b.	Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous.
	c.	Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.
	d.	Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

Table 4-16
The following table shows the supply and demand schedules in a market.

Price ($)	Quantity Demanded (units)	Quantity Supplied (units)
0	50	0
2	40	15
4	30	30
6	20	45
8	10	60
10	0	75

Refer to Table 4-16. If the supply curve shifts to the right, will the price in this market rise or fall?

A shortage is the same as an excess demand.

True

False

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because

	a.	the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.
	b.	buyers will have substantially more real income over a ten-year period.
	c.	buyers tend to be much less sensitive to a change in price when given more time to react.
	d.	buyers tend to be much more sensitive to a change in price when given more time to react.

Answer 1

a) "D"

An increase in the demand and decrease in the supply will both increase the price but increase in demand will increase the price and decrease in supply will decrease the price, answer is "D", Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous.

b) If the supply curve shift to the right the price in the market will fall.

c) "True"

Shortage will be created when the demand cannot be fulfilled in the market.

d) "D"

In the long run people have substitutes and that make them much more sensitive to a change in price when given more time to react.