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The document contains 10 multiple choice or short answer questions about microeconomics concepts like supply and demand, complements and substitutes, and effects of price controls. Question 1 asks about the impact of an increase in the price of film streaming on movie ticket demand. Question 2 asks about the impact of discovering a new oil reserve on gasoline prices. Subsequent questions address equilibrium price and quantity, impacts of cost and price changes in various markets, and the effects of minimum wage laws.

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Amit Semwal
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197 views

Fa 2

The document contains 10 multiple choice or short answer questions about microeconomics concepts like supply and demand, complements and substitutes, and effects of price controls. Question 1 asks about the impact of an increase in the price of film streaming on movie ticket demand. Question 2 asks about the impact of discovering a new oil reserve on gasoline prices. Subsequent questions address equilibrium price and quantity, impacts of cost and price changes in various markets, and the effects of minimum wage laws.

Uploaded by

Amit Semwal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Formative Assessment-2

1. Movie tickets and film streaming services are substitutes. If the price of film streaming
increases, what happens in the market for movie tickets?
a. The supply curve shifts to the left.
b. The supply curve shifts to the right.
c. The demand curve shifts to the left.
d. The demand curve shifts to the right.

Answer: D

2. The discovery of a large new reserve of crude oil will shift the ________ curve for gasoline,
leading to a ________ equilibrium price.
a. supply, higher
b. supply, lower
c. demand, higher
d. demand, lower

Answer: B

3. (i) Consider the markets for film streaming services, TV screens, and tickets at movie
theaters. For each pair, identify whether they are complements or substitutes:
b. Film streaming and TV screens: complement
c. Film streaming and movie tickets: substitutes

(ii) Suppose a technological advance reduces the cost of manufacturing TV screens. Draw a
diagram to show what happens in the market for TV screens.

The technological advancement would reduce the cost of producing a TV Screen, shifting the
supply curve to the right. The demand curve would not be affected. The result is that the
equilibrium price will fall, while the equilibrium quantity will rise.
4. The market for pizza has the following demand and supply schedules:
Price Quantity Demanded Quantity Supplied
4 135 pizzas 26 pizzas
5 104 53
6 81 81
7 68 98
8 53 110
9 39 121
a. Graph the demand and supply curves. What are the equilibrium price and quantity in this
market?

b. If the actual price in this market were above the equilibrium price, what would drive the
market toward the equilibrium?

If the price were above $6, quantity supplied would exceed quantity demanded, so suppliers
would reduce the price to gain sales.

c. If the actual price in this market were below the equilibrium price, what would drive the
market toward the equilibrium?

If the price were below $6, quantity demanded would exceed quantity supplied, so suppliers
could raise the price without losing sales. In both cases, the price would continue to adjust
until it reached $6, the only price at which there is neither a surplus nor a shortage.

5. Consider the market for paperbound economics textbooks. Explain whether the following events
would cause an increase or a decrease in supply or an increase or a decrease in the quantity
supplied.
a. The market price of paper increases. – Decrease in supply
b. The market price of economics textbooks increases. – Increase in quantity shipped
c. The number of publishers of economics text-books increases. – Increase in Supply
d. Publishers expect that the market price of economics textbooks will increase next month. –
Decrease in supply
6. Consider the market for smart-phones. Explain whether the following events would cause an
increase or a decrease in supply or an increase or a decrease in the quantity supplied. Illustrate
each, and show what would happen to the equilibrium quantity and the market price.

a. The price of touch screens used in smart-phones declines.


This will cause an increase in supply, equilibrium quantity would increase. Equilibrium price
would decrease.
b. The price of machinery used to produce smart-phones increases.
This will cause a decrease in supply, equilibrium quantity would decrease. Equilibrium price
would increase.
c. The number of manufacturers of smart-phones increases.
This will cause a decrease in quantity supplied, equilibrium quantity would decrease.
Equilibrium price would decrease.

7. Consider the market for cable-based Internet access service, which is a normal good. Explain
whether the following events would cause an increase or a decrease in demand or an increase or a
decrease in the quantity demanded.

a. Firms providing wireless (an alternative to cable) Internet access services reduce their
prices.
There will be a decrease in demand
b. Firms providing cable-based Internet access services reduce their prices.
There will be increase in quantity demanded

c. There is a decrease in the incomes earned by consumers of cable-based Internet access ser
vices.
There will be decrease in demand

d. Consumers’ tastes shift away from using wire-less Internet access in favor of cable-
based Internet access services.

There will be increase in demand.


8. In the market for flash memory drives (a normal good), explain whether the following events
would cause an increase or a decrease in demand or increase or a decrease in the quantity
demanded. Also explain what happens to the equilibrium quantity and the market clearing price.

a. There are increases in the prices of storage racks for flash memory drives.

Decrease in demand. – Equilibrium quantity would decrease, Equilibrium price would decrease

b. There is a decrease in the price of computer drives that read the information contained on flash
memory drives.

Increase in demand. – Equilibrium quantity would increase, Equilibrium price would increase

c. There is a dramatic increase in the price of secure digital cards that, like flash
memory drives, can be used to store digital data.

Increase in demand. – Equilibrium quantity would increase, Equilibrium price would increase

d. Consumers of flash memory drives anticipate that the price of this good will decline in
the future.

Decrease in demand. – Equilibrium quantity would decrease, Equilibrium price would decrease

9. Consider the diagram below, which depicts the labor market in a city that has adopted a “living
wage law” requiring employers to pay a minimum wage rate of $11 per hour. Answer the questions
that follow:

13
12
11
10 wage
9
8
7

0 94 96 98 100 102 104 106 Quantity of Workers


(thousands)
a. What condition exists in this city’s labor market at the present minimum wage of $11 per
hour? How many people are unemployed at this wage?
b. A councilman has offered a proposal. In his view, the current minimum wage is too low and
should be increased to $12 per hour. Assuming that the labor demand and supply curves remain in
their present positions, how many people would be unemployed at a new $12 minimum wage?

10. ‘Setting price below the equilibrium price as an outcome of a policy measure would have
adverse impact’. Explain what does this statement implies give reasons and examples in support
of your answer.

If the market price is below the equilibrium price, quantity supplied is less than quantity demanded,
creating a shortage.

The market is not clear. It is in shortage.

Market price will rise because of this shortage.

In this situation, consumers won't be able to buy as much of a good as they would like. In response
to the demand of the consumers, producers will raise both the price of their product and the quantity
they are willing to supply. The increase in price will be too much for some consumers and they
will no longer demand the product. Meanwhile the increased quantity of available product will
satisfy other consumers. Eventually equilibrium will be reached.

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