Unformatted text preview: Textbook Reading Comprehension Questions: Unit II (sections 5-9) 1. A shift to the left of the air travel demand curve. 3. We know that there will be an excess demand (shortage) of the product. 2. A simultaneous reduction in both demand and supply of a product will lead to a
lower market equilibrium quantity bought and sold of the product. 4. We cannot predict the change in Pe, but Qe increases 1. Demand; quantity demanded 1 3. Find individual consumer demand curves and add them together. 4. A shift to the left in the supply curve An increase in demand shifts the demand curve vertically up and an increase in
supply also shifts the supply curve vertically up. 3. Market demand. 4. All of the above 4. All of above 2 4. Market equilibrium price will decrease and change in market equilibrium
quantity is unknown (ambiguous). 2. An increase in demand and a decrease in supply. 4. Equilibrium price decreases and equilibrium quantity may either increase or
decrease. 1. If |Ed| is larger than 1, then the good is price elastic and consumers are less price
responsive.
2. If |Ed| is larger than 1, the good is price inelastic and consumers are more price responsive.
3. If |Ed| is larger than 1, the good is price elastic and consumers are more price
responsive.
4. Goods that consumers consider to be necessities have larger |Ed| while goods that
consumers consider to be luxuries have smaller |Ed|.
None of the above. 1.
2.
3.
4. Price elastic.
Price inelastic.
Perfectly price elastic.
Perfectly price inelastic.
Unit price elastic. 3 1.
2.
3.
4.
5. Price inelastic; price elastic; price inelastic.
Price inelastic; unit price elastic; price inelastic.
Price elastic; unit price elastic; price inelastic.
Price elastic; unit price elastic; price elastic.
Price inelastic; unit price elastic; price elastic. 1.
2.
3.
4. Right; lower; lower.
Left; lower; lower.
Right; higher; higher.
Left; higher; higher.
Right; lower; higher. 2. Raise the price. 2. The absolute value of the price elasticity of demand is equal to 1. 1. He realizes that his consumers are price inelastic. 5. >1; price elastic. 4 5. All of the above. 5. Only (1) and (2). 1.
2. The erosion on corn and soybean crops this summer as a result of the drought in
the U.S. 5. All of the above. 5 5. Only (1), (2) and (3). 5. Only (2) and (3). 4. Sadness reverses the Endowment Effect. 5. All of the above 3. The U.S., Canada and the European Union try to insulate their domestic markets
from international price changes. 1. Chinese consumers, as a result of rising income and increased taste for dairy
products, are helping to drive up milk prices around the world. 6 4. All of the above 2. Weak domestic demand for pork. 7 Analytical Questions 1.
2.
3.
4. P = $10, Q = 25,000
P = $8, Q = 20,000
P = $12, Q = 20,000
P = $5, Q = 30,000
None of the above 1. They will be forced to sell their drinks at a lower price to attract customers, and will sell
fewer drinks.
2. They will sell their drinks at a higher price, since they have lost competition, but will have
fewer customers since bars aren’t as popular.
3. They can’t be sure what will happen to the price of their drinks, but they can be sure
that fewer drinks will be sold in the city of Philadelphia.
4. Since many of the other bars will shut down, they will have less competition, and will sell
their drinks at a higher price and to more customers, since customers from other bars will be
more likely to visit their bar.
They really won’t be able to make an accurate prediction as to how the price and quantity of
their drinks will change until they actually experience the effects of the market shocks. 1.
2.
3.
4. The new equilibrium price will be higher while the new equilibrium quantity will be the
same.
The new equilibrium price will be lower while the new equilibrium quantity will be the
same.
The new equilibrium price will be the same while the new equilibrium quantity will
be higher.
The new equilibrium price will be the same while the new equilibrium quantity will be
lower.
We cannot make any prediction due to lack of information. 8 38. Price($)
310
320
330
340
350
1.
2.
3.
4.
5. Quantity Demanded
18,000
16,000
14,000
12,000
10,000 Quantity Supplied
12,000
13,000
14,000
15,000
16,000 Equilibrium price is $340.
If price is $320, there exists excess supply in the amount of 3000 in this market.
If price is $330, there exists excess supply in the amount of 1000 in this market.
If price is $340, there exists excess supply in the amount of 3000 in this market.
If price is $350, there exists excess demand in the amount of 6000 in this market. 1. The magnitude of a decrease in demand is greater than the magnitude of an increase in
supply.
2. The magnitude of a decrease in demand is smaller than the magnitude of a decrease in
supply.
3. An increase in demand and a decrease in supply are of the same magnitude.
4. An increase in demand and an increase in supply are of the same magnitude.
5. None of the above. 4. There was a decrease in market supply; market demand is price inelastic. 3. 0.5 9 2. 0.90 2. 4.9 3. Greater than 10 ...
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