Economics Chapter: Surplus and Equilibrium

Questions and Answers

A surplus occurs whenever?

Quantity demanded is greater than quantity supplied

Some buyers would be willing and able to pay even more for it than they have to at equilibrium

Quantity supplied exceeds quantity demanded at the equilibrium price

Current price is greater than equilibrium price (correct)

The problem of scarcity of a good is solved

A surplus of textbooks will cause?

Both a decrease in the supply of textbooks and an increase in the demand for textbooks

A decrease in the demand for textbooks

A decrease in the price of textbooks (correct)

A decrease in the supply of textbooks

A decrease in the price of textbooks, caused by a shift of either the supply curve or the demand curve

When quantity demanded of a good is greater than the quantity supplied at the prevailing market price?

The supply curve shifts rightward until the shortage is eliminated

The market is in equilibrium

The demand curve shifts leftward until the shortage is eliminated

The price of the good tends to fall

The price of the good tends to rise (correct)

A surplus of wheat?

Is impossible if the price of wheat is below equilibrium Signup and view all the answers

'Market clearing' refers to the case where?

All of the above Signup and view all the answers

Suppose, with a given supply and demand curve, the market for guitars would clear at $1200, but the current price of guitars is $1100. What does this indicate?

There is a shortage of guitars Signup and view all the answers

According to your text, when a shortage exists?

Buyers compete with buyers Signup and view all the answers

The most important characteristic of the equilibrium price is that it?

Clears the market, leaving neither a surplus nor a shortage Signup and view all the answers

A rightward shift of a supply curve?

Would cause an excess quantity supplied at the previous equilibrium price Signup and view all the answers

The effect of a decrease in consumer income on equilibrium price and quantity of a used car (an inferior good) is?

To increase equilibrium price and quantity Signup and view all the answers

If a certain type of clothing becomes less fashionable, we would expect that its equilibrium price?

And equilibrium quantity will both decrease Signup and view all the answers

What is the effect of a decrease in the price of potato chips on the market for pretzels (a substitute good)?

Both equilibrium price and equilibrium quantity fall Signup and view all the answers

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

An increase in supply, lower equilibrium price, and higher equilibrium quantity Signup and view all the answers

A decrease in the supply of pizza would usually result in a?

Higher equilibrium price and a lower equilibrium quantity Signup and view all the answers

Suppose demand increases and supply decreases. Which of the following will happen?

Equilibrium price will increase Signup and view all the answers

Assume that supply increases greatly and demand decreases slightly. Which of the following will happen?

Equilibrium price will fall and equilibrium quantity will rise Signup and view all the answers

If both demand and supply increase, price will?

Increase only if demand increases more than supply does Signup and view all the answers

Suppose the market clearing price for apples decreases from $4.00 to $3.00 per pound, and the overall market clearing output decreases from 10 million to 8 million pounds. How can we explain the decrease in price and decrease in market output?

Demand decreased and supply remained unchanged Signup and view all the answers

Study Notes

Surplus and Equilibrium

A surplus occurs when the current price exceeds the equilibrium price, leading to excess supply.
Surpluses result in a decrease in prices as producers seek to sell surplus stock.
A rightward shift in the supply curve indicates an excess quantity supplied at previous equilibrium.

Shortages

A shortage happens when quantity demanded surpasses quantity supplied at the current market price, causing prices to rise.
Buyers compete with each other to secure limited goods during shortages.

Market Clearing

"Market clearing" describes a situation where quantity demanded equals quantity supplied, eliminating surpluses and shortages.
The equilibrium price is critical as it clears the market, balancing supply and demand without excess.

Impact of Changes in Supply and Demand

A decrease in consumer income increases the equilibrium price and quantity for inferior goods, like used cars.
Decreased demand results in lower equilibrium prices and quantities, as seen with changes in fashion trends.
An increase in supply, stimulated by improved production methods (e.g., hormones for cows), leads to lower prices but higher quantities.

Cross-Price Effects

A decrease in the price of one good (e.g., potato chips) can lead to a decline in both equilibrium price and quantity for its substitutes (e.g., pretzels).
Changes in demand and supply balance dictate overall market movements: demand increases coupled with supply decreases will raise equilibrium prices.

Price Adjustments

The equilibrium price can be influenced by various factors; if demand increases faster than supply, prices will rise; if supply increases faster than demand, prices will fall.
Market dynamics are responsive; both equilibrium price and quantity can alter based on shifts in either demand or supply.

Conclusion

Understanding how surpluses and shortages interact with market prices is essential to grasping economic principles.
The correlation between supply shifts, demand changes, and resultant price movements is foundational in economic theory.

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Description

This quiz explores the concepts of surplus, shortage, and market clearing within the context of equilibrium prices. It analyzes how changes in supply and demand affect market dynamics and pricing strategies. Test your understanding of these fundamental economic principles.