Econ Unit 2 Review

Which of the following will NOT cause a change in the demand for goods?

• A change in the cost of inputs, or resources

• A change in consumer tastes

• A change in population, like a baby boom

• A change in the price of related goods, like substitutes or complements

Answer explanation

A change in the cost of inputs affects supply, not demand. The other options directly influence consumer preferences or market conditions, leading to changes in demand for goods.

All of the following are examples of complements EXCEPT

• flashlights and batteries

• peanut butter and jelly

• butter and margarine

• cell phones and phone cases

Answer explanation

Butter and margarine are substitutes, not complements. Complements are products that enhance each other's use, like flashlights and batteries or peanut butter and jelly.

What happens to the supply of orange juice when a hurricane destroys Florida’s orange groves?

• The supply increases.

• The supply remains the same.

• The supply decreases.

• The supply becomes unlimited.

Answer explanation

When a hurricane destroys Florida's orange groves, the production of oranges decreases significantly. This leads to a decrease in the supply of orange juice, as fewer oranges are available for juice production.

What is the effect of the government providing a subsidy to a new electric company?

• The supply decreases.

• The supply remains the same.

• The supply increases.

• The supply becomes unpredictable.

Answer explanation

When the government provides a subsidy to a new electric company, it reduces production costs, encouraging the company to produce more. This leads to an increase in supply, making 'The supply increases' the correct choice.

What happens when the boss praises his workers and gives them incentives to work harder?

• The supply decreases.

• The supply remains the same.

• The supply increases.

• The supply becomes unpredictable.

Answer explanation

When the boss praises his workers and provides incentives, it motivates them to increase their productivity. This leads to a higher output of goods or services, resulting in an increase in supply.

When the Quantity Supplied exceeds the Quantity Demanded:

• Shortage

• Surplus

• Equilibrium

• Monopoly

Answer explanation

When the Quantity Supplied exceeds the Quantity Demanded, it results in a Surplus. This means there are more goods available than consumers want to buy, leading to excess supply in the market.

If it is discovered that the pesticides used in the farming of Kansas wheat causes a painful, allergic reaction, then in the market for wheat and breads:

• equilibrium price will increase as demand for wheat and bread will increase.

• equilibrium price will increase as supply of wheat and bread decreases.

• equilibrium price will decrease as there will be no change in demand for wheat and bread.

• equilibrium price will decrease as demand for wheat and bread will decrease.

Answer explanation

The discovery of allergic reactions to pesticides will decrease demand for wheat and bread, as consumers may avoid these products. This decrease in demand leads to a lower equilibrium price in the market.

A Price Ceiling is...

• a minimum price set by government, which leads to a shortage.

• a minimum price set by government, which leads to a surplus.

• a maximum price set by government, which leads to a surplus.

• a maximum price set by government, which leads to a shortage.

Answer explanation

A Price Ceiling is a maximum price set by the government. When this price is below the equilibrium price, it leads to a shortage because demand exceeds supply at that price.

When there is an increase in demand, all else held equal, what happens to equilibrium price and quantity?

• Equilibrium price decreases and equilibrium quantity increases.

• Equilibrium price increases and equilibrium quantity decreases.

• Equilibrium price decreases and equilibrium quantity decreases.

• Equilibrium price increases and equilibrium quantity increases.

Answer explanation

When demand increases, buyers are willing to pay more, leading to a rise in equilibrium price. Simultaneously, suppliers respond to higher prices by increasing production, resulting in a higher equilibrium quantity.

Using the supply and demand model, what will happen to the equilibrium price and quantity for iPads when American incomes have decreased by 3 percent?

• Equilibrium price will decrease and equilibrium quantity will decrease.

• Equilibrium price will increase and equilibrium quantity will increase.

• Equilibrium price will increase and equilibrium quantity will decrease.

• Equilibrium price will decrease and equilibrium quantity will increase.

Answer explanation

A decrease in American incomes reduces demand for normal goods like iPads. This shift in demand leads to a lower equilibrium price and quantity, making the correct answer: equilibrium price will decrease and equilibrium quantity will decrease.