Clayton State University ECON 6100. Chapter 8 Understanding Markets and Industry Changes. Contains 82 QnA and Solutions.

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1. Demand and supply analysis is particularly important if a. the success of your firm is closely linked to the profitability of your primary industry b. the success of your firm is independent of t... he profitability of your primary industry c. the success of your firm is unlikely d. demand and supply analysis is unimportant TOPICS: Section 1: Which Industry or Market 2. If movie theatres decided to increase the price for the movie tickets, holding other factors constant, what would happen to the demand for popcorn in the theatres? a. the demand for popcorn would shift to the left because popcorn and movies are substitute goods. b. the demand for popcorn would shift to the left because popcorn and movies are complementary goods. c. the demand for popcorn would shift to the right because popcorn and movies are substitute goods. d. the demand for popcorn would shift to the right because popcorn and movies are complementary goods. TOPICS: Section 2: Shifts in Demand 3. Changes in the price of a product can cause a. A movement along the demand curve b. A shift of the demand curve c. A shift of the supply curve d. All of the above TOPICS: Section 2: Shifts in Demand 4. After the housing bubble burst, consumer confidence plummeted and housing sales dropped to all-time lows. This caused the demand curve for normal goods to shift a. inwards b. outwards c. stay constant d. none of the above TOPICS: Section 2: Shifts in Demand 5. The change in any factor other than ________ would shift the demand curve a. Weather b. interest rate c. Price d. all of the above TOPICS: Section 2: Shifts in Demand 6. An increase in the price of a substitute shifts the demand curve to the _______ a. right b. left c. it does not change the demand curve d. none of the above TOPICS: Section 2: Shifts in Demand 7. An increase in the price of a complement shifts the demand curve to the a. right b. left c. it does not change the demand curve d. none of the above TOPICS: Section 2: Shifts in Demand 8. A decrease in the price of a substitute shifts the demand curve to the _______ a. right b. left c. it does not change the demand curve d. none of the above TOPICS: Section 2: Shifts in Demand 9. A decrease in the price of a complement shifts the demand curve to the a. right b. left c. it does not change the demand curve d. none of the above TOPICS: Section 2: Shifts in Demand 10. An increase in demand could arise from which of the following factors a. an increase in income b. a decrease in the price of a complement c. an increase in the price of a substitute d. all of the above TOPICS: Section 2: Shifts in Demand 11. An increase in demand could arise from which of the following factors a. an increase in income b. a decrease in the price of a substitute c. an increase in the price of a complement d. all of the above TOPICS: Section 2: Shifts in Demand 12. Assuming that beer is a normal good, what will happen to the demand for beer near college towns if student income increased? a. Demand will fall because students love these beers b. Demand will fall c. Demand will rise d. Supply would rise TOPICS: Section 2: Shifts in Demand 13. A recent medical study shows that peanuts are one of the leading causes of high cholesterol. This would cause the demand for peanuts to a. Shift to the left b. Shift to the right c. go down the demand curve d. not change TOPICS: Section 2: Shifts in Demand 14. The change in quantity demanded derived from a change in price is a. the movement along a demand curve b. the movement along a supply curve c. a shift in the demand curve d. a shift in the supply curve TOPICS: Section 2: Shifts in Demand 15. Recent research suggested that there are large health benefits from consuming cooked tomatoes. Holding other things constant, this will cause a. The demand curve for tomatoes to shift to the right b. The demand curve for tomatoes to shift to the left c. The supply curve for tomatoes to shift to the right d. The supply curve for tomatoes to shift to the left TOPICS: Section 2: Shifts in Demand 16. How does an increase in income affect the market for bus rides (inferior good)? a. The demand curve for bus rides to shift to the right b. The demand curve for bus rides to shift to the left c. The supply curve for bus rides to shift to the right d. The supply curve for bus rides to shift to the left TOPICS: Section 2: Shifts in Demand 17. An increase in income causes the demand for inferior goods to_____________ and the price of inferior goods to ____________. a. Increase; increase b. Increase; decrease c. Decrease; increase d. Decrease, decrease TOPICS: Section 2: Shifts in Demand 18. An increase in income causes the demand of normal goods to _________ and the price of normal goods to a. Increase; increase b. Increase; decrease c. Decrease; increase d. Decrease, decrease TOPICS: Section 2: Shifts in Demand 19. How does an increase in income affect the market for iPads (normal good)? a. The demand curve for iPads shifts to the right b. The demand curve for iPads shifts to the left c. The supply curve for iPads shifts to the right d. The supply curve for iPads shifts to the left TOPICS: Section 2: Shifts in Demand 20. You lose your job and as a result your demand for steak falls. This implies that you consider steaks to be a a. Complementary good b. Normal good c. Inferior good d. Substitute good TOPICS: Section 2: Shifts in Demand 21. While you were an intern you bought 5 packages of hot dogs a month. After acquiring a full-time job with a considerably higher salary, you stopped purchasing hot dogs. For you, hot dogs are a a. Complementary good b. Normal good c. Inferior good d. Substitute good TOPICS: Section 2: Shifts in Demand 22. The wages for Nike workers increases. At the same time, we see the price for Adidas shoes increase. This would cause the price for Nike shoes_____________ and the quantity demanded for Nike shoes ____________. a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain TOPICS: Section 2: Shifts in Demand 23. Firm X both produces automobiles and owns gas stations. If decides to decrease the gas to induce higher sales for the automobiles, it means that a. the gas and the automobiles are complements b. the gas and the automobiles are substitutes c. the gas and the automobiles are not related in demand d. none of the above TOPICS: Section 2: Shifts in Demand 24. Peter’s Pizzeria sells both pizzas and wings. It wants to increase the sales of its pizzas. If it decides to increase the price of the wings, it is assuming that a. the pizza and the wings are substitutes b. the pizza and the wings are complements c. the pizza and the wings are unrelated in demands d. it cannot increase the sales of its pizzas TOPICS: Section 2: Shifts in Demand 25. Holding other factors constant, if bad weather destroys the annual crop for carrots, it causes the supply curve for carrots to a. Shift to the left, causing the prices of carrots to rise b. Shift to the left, causing the prices of carrots to fall c. Stay the same d. The supply curve does not shift. Only the demand curve shifts. TOPICS: Section 3: Shifts in Supply 26. All these factors would shift the supply curve of tobacco, except a. Bad weather b. Change in the price of tobacco c. Changes in the wages of agricultural workers d. A tax charged on the production of tobacco TOPICS: Section 3: Shifts in Supply 27. How does an increase in the price of laptop memory chips affect the market of laptops? a. The demand curve for laptops shifts to the right b. The demand curve for laptops shifts to the left c. The supply curve for laptops shifts to the right d. The supply curve for laptops shifts to the left TOPICS: Section 3: Shifts in Supply 28. A supply curve describes a. the relationship between price and quantity demanded b. the relationship between price and quantity supplied c. the relationship between a group of buyers and sellers d. none of the above TOPICS: Section 3: Shifts in Supply 29. A supply curve slopes upwards because a. the higher the price the lower the quantity that the sellers are willing to supply b. the higher the price the higher the quantity that the sellers are willing to supply c. the quantity supplied in insensitive to price d. an increase in price brings the quantity sold down to zero TOPICS: Section 3: Shifts in Supply 30. Which of the following factors would shift the supply curve for ice cream to the right? a. a new cooling technology emerges b. the price per unit increases c. the number of producers in the market for ice cream increase d. Both A&C TOPICS: Section 3: Shifts in Supply 31. Which of the following would shift the supply of Florida Oranges to the left? a. a hurricane in Florida destroying a major part of the crop b. an increase in the price of water per unit, a major input, used to irrigate the orange trees c. one of the orange grooves shuts down d. all of the above TOPICS: Section 3: Shifts in Supply 32. A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts needed to make bikes falls. The demand curve would _________ and the supply curve would__________ a. Shift to the right, shift to the left b. shift to the left, shift to the right c. shift to the left, shift to the left d. shift to the right, shift to the right TOPICS: Section 4: Market Equilibrium 33. Suppose the demand for pens increases and the supply for pens decreases. What effect will it have on the equilibrium price for pens? a. It will rise b. It will fall c. Uncertain d. None TOPICS: Section 4: Market Equilibrium 34. As the income of bus riders increased, the wages of bus drivers increased simultaneously. How does this affect the market for bus rides (inferior good)? a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right TOPICS: Section 4: Market Equilibrium 35. People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. How does this affect the market for peanut butter? a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right TOPICS: Section 4: Market Equilibrium 36. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market, what is the equilibrium price in this market? a. 7 b. 8 c. 9 d. 10 TOPICS: Section 4: Market Equilibrium 37. In the market for used cars we have 10 sellers, willing to sell at the prices of $1000, $2000, $3000, $4000, $5000, $6000, $7000, $8000, $9000, $10000. If the equilibrium price in the market is $2500, how many cars would be sold? a. 1 b. 2 c. 3 d. 4 TOPICS: Section 4: Market Equilibrium 38. In the market for used cars we have 10 sellers, willing to sell at the prices of $1000, $2000, $3000, $4000, $5000, $6000, $7000, $8000, $9000, $10000. What could the market price be in order to induce five sellers to offer their cars for sale? a. $4001 b. $5001 c. $6001 d. $7001 TOPICS: Section 4: Market Equilibrium 39. Which of the following statements is true a. a market equilibrium price is where quantity demanded equals quantity supplied b. a market equilibrium price is where the demand is higher than the supply c. a market equilibrium price is where the supply is higher than the demand d. none of the above TOPICS: Section 4: Market Equilibrium 40. In a market where the equilibrium price is $7, any price lower than $7 would cause a. a balanced demand and supply b. an excess supply c. an excess demand d. none of the above TOPICS: Section 4: Market Equilibrium 41. In a market where the equilibrium price is $7, any price higher than $7 would cause a. a balanced demand and supply b. an excess supply c. an excess demand d. none of the above TOPICS: Section 4: Market Equilibrium 42. Excess demand of a product exerts __________pressure on prices a. Zero b. No c. Upward d. Downward TOPICS: Section 4: Market Equilibrium 43. Excess supply of a product exerts ___________pressure on prices a. Zero b. No c. Upward d. Downward TOPICS: Section 4: Market Equilibrium 44. At the equilibrium price a. only sellers who value the product more than the equilibrium price would be willing to sell b. only buyers who value the product less than the equilibrium price would be willing to buy c. only buyers who value the product more than the equilibrium price would be willing to buy d. None of the parties would be willing to trade TOPICS: Section 4: Market Equilibrium 45. Which of the following statements is true a. in market equilibrium there are unconsummated value-creating transactions b. in market equilibrium there are unconsummated wealth-destroying transactions c. in market equilibrium there are no unconsummated wealth-creating transactions d. none of the above TOPICS: Section 4: Market Equilibrium 46. In the 1990s, many people had rising incomes. At the same time, there was a rise in the cost of lumber. This would cause the demand for houses to _________ and the supply for houses to_________. a. Increase, increase b. Increase, decrease c. Decrease, increase d. Decrease, decrease TOPICS: Section 5: Predicting Industry Changes Using Supply and Demand 47. An increase in income causes, the price for ipads _____________ and the quantity demanded for ipads ____________. a. Increase; increase b. Increase; decrease c. Decrease; increase d. Decrease, decrease TOPICS: Section 5: Predicting Industry Changes Using Supply and Demand 48. A recent medical study reports new benefits of cycling. Simultaneously, the price of the parts needed to make bikes falls. If the change in supply is greater than the change in demand, the price will _________ and the quantity will _________. a. Rise, rise b. Rise, fall c. Fall, rise d. Fall, fall TOPICS: Section 6: Explaining Industry Changes Using Supply and Demand 49. The wages for Nike workers increases. At the same time, we see the price for Adidas shoes increase. How does this affect the market for Nike shoes? a. The demand curve will shift to the left; the supply curve will shift to the left b. The demand curve will shift to the left; the supply curve will shift to the right c. The demand curve will shift to the right; the supply curve will shift to the left d. The demand curve will shift to the right; the supply curve will shift to the right TOPICS: Section 6: Explaining Industry Changes Using Supply and Demand 50. Firm X owns both tea and coffee plantations. It sells directly to the public. If the firm wants to increase the sales for the coffee, assuming that tea and coffee are substitutes, which of these strategies can it employ? a. Increase the price for the tea b. Offer free expedited shipping on the coffee c. Advertise the tea more heavily d. Both A&B TOPICS: Section 6: Explaining Industry Changes Using Supply and Demand 51. Peter’s Pizzeria sells both pizzas and wings. It wants to increase the sales of its pizzas. Assuming that the pizza and the wings are complements, which of these strategies can it employ? a. Increase the price of the wings b. Decrease the price of the wings c. Increase the quality of the pizza d. Both B & C TOPICS: Section 6: Explaining Industry Changes Using Supply and Demand 52. The law of supply states that, holding other factors constant, as price increases a. Quantity supplied increases b. Quantity supplied decreases c. Quantity demanded increases d. Quantity demanded decreases TOPICS: Section 7: Prices Convey Valuable Information 53. An increase in the price of laptop memory chips causes the price for laptops _____________ and the quantity supplied for laptops ____________. a. Increase; increase b. Increase; decrease c. Decrease; increase d. Decrease, decrease TOPICS: Section 7: Prices Convey Valuable Information 54. An increase in the income of bus riders, accompanied by a simultaneous increase in the wages of the bus drivers causes, the price for bus rides(an inferior good) _____________ and the quantity demanded for bus rides ____________. a. Decreases; decreases b. Increase; increases c. Uncertain, Decreases d. Uncertain, Increases TOPICS: Section 7: Prices Convey Valuable Information 55. People like consuming peanut butter and jelly together. The price of peanuts increases. At the same time, we see the price for Jelly rise. This would make the price for peanut butter_____________ and the quantity demanded for peanut butter ____________. a. Uncertain; decreases b. Decreases; increases c. Decreases; uncertain d. Increases; uncertain TOPICS: Section 7: Prices Convey Valuable Information 56. An increase in price could occur due to a(n) a. Increase in demand and no change in supply b. Decrease in supply and no change in demand c. An increase in demand and decrease in supply d. All of the above TOPICS: Section 7: Prices Convey Valuable Information 57. The information conveyed by changes in market prices is especially important in financial markets because a. It forces individual investors to reveal their information about the prospects of a security b. It assesses business decisions c. It helps firms forecast the future demand for products d. All of the above TOPICS: Section 7: Prices Convey Valuable Information 58. Which of the following statements is true? a. A company can manipulate uncontrollable factors to increase the demand for its product b. A company can manipulate uncontrollable factors to increase the supply of its product c. A company cannot manipulate uncontrollable factors to increase the demand for its product d. A company cannot manipulate controllable factors to increase the demand for its product TOPICS: Section 8: Market Making 59. Which of these is an example of a controllable factor for a firm that sells pizzas a. The price of the pizza b. The delivery rates of the pizza c. The quality of the wings sold by the street vendor across the street d. Both A & B TOPICS: Section 8: Market Making 60. If a firm can create important complements to its original product, it has a. Created an uncontrollable factor that can change the demand for its product b. Created an uncontrollable factor that cannot change the demand for its product c. Created a controllable factor that can change the demand for its product d. Created a controllable factor that cannot change the demand for its product TOPICS: Section 8: Market Making 61. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. If there is a market maker in this market. What is the profit maximizing bid-ask spread per unit for a market maker? a. $6 bid; $12 ask b. $7 bid; $11 ask c. $8 bid; $10 ask d. $9 bid; $9 ask TOPICS: Section 8: Market Making 62. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. At the optimal bid-ask spread, how many transactions would the market maker undertake in this market a. two transacttions b. three transactions c. four transactions d. five transactions TOPICS: Section 8: Market Making 63. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. At the optimal bid, ask spread, what is the total profit that the market maker makes? a. $8 b. $12 c. $18 d. $20 TOPICS: Section 8: Market Making 64. Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. Now suppose competition among several market makers forces the spread down to $4. How many goods are traded? a. Four b. Five c. Six d. Seven TOPICS: Section 8: Market Making 65. “Market making” a. is the action of bringing together high value buyers and low value sellers b. transfers goods from their low value uses to high value uses, creating wealth c. can not occur if the transaction costs are too high to prevent value creating transactions d. all of the above TOPICS: Section 8: Market Making 66. To earn profits, the market maker must a. bid high, ask low b. bid low, ask high c. equalize the bid and ask price d. not create the market TOPICS: Section 8: Market Making 67. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. What is the equilibrium price in the market without the market maker a. $12 b. $11 c. $10 d. $9 TOPICS: Section 8: Market Making 68. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. What is the equilibrium quantity in the market a. 5 units b. 6 units c. 7 units d. 8 units TOPICS: Section 8: Market Making 69. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker bought and sold at the equilibrium price, what is his profit a. $1 b. $2.5 c. $3 d. $0 TOPICS: Section 8: Market Making 70. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he bid (the suppliers)A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he bid (the suppliers) a. $9 b. $8 c. $7 d. $6 TOPICS: Section 8: Market Making 71. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker wants to make three transactions, what should he ask (the buyers) a. $12 b. $13 c. $14 d. $15 TOPICS: Section 8: Market Making 72. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker makes three transactions, what is his bid-ask spread per unit a. $4 b. $5 c. $6 d. $7 TOPICS: Section 8: Market Making 73. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker makes three transactions, what is his total profit? a. $12 b. $15 c. $18 d. $21 TOPICS: Section 8: Market Making 74. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker decides to only make one transaction what is his profit/bid-ask margin a. $8 b. $10 c. $12 d. $16 TOPICS: Section 8: Market Making 75. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. How many transactions must the market maker make if he wants to maximize his profits? a. 1 b. 2 c. 3 d. 4 TOPICS: Section 8: Market Making 76. A market maker faces the following demand and supply for widgets. Eleven buyers are willing to buy at the following prices: $15, $14, $13, $12, $11, $10, $9, $8, $7, $6, $5. Eleven sellers are also willing to sell at the same prices. If the market maker is free to choose the number of transactions he can make, what is his maximum profit? a. $8 b. $10 c. $18 d. $28 TOPICS: Section 8: Market Making 77. For a wheat farmer, the following factor(s) are uncontrollable a. Quality of the wheat b. Weather c. The speed at which the product reaches its buyers d. All of the above TOPICS: Section 8: Market Making 78. Natural Gas Boom Technological improvements in hydraulic fracturing, or “Fracking,” have decreased the cost of extracting smaller pockets of natural gas. What affect does this have on supply and demand as well as on the equilibrium price and quantity? 79. Gas and Coal Utility companies can use a mix of plants different energy sources to produce electricity, mainly these are coal fired plants but increasingly they relying on gas turbines. Technological improvements in hydraulic fracturing, or “fracking,” have decreased the cost of extracting smaller pockets of natural gas. What affect does fracking have on supply and demand for coal? 80. Olive Oil Spain is the world’s number 1 producer of olive oil, mostly in the southern Andalusia region. But very dry weather there has ravaged olive trees. What affect will the poor weather have on the olive oil market? 81. Nutella and Hazelnuts A key ingredient of Nutella is hazelnuts which are grown mostly around the Black Sea in Turkey. Nutella uses about a quarter of the world crop. Two things have occurred recently. Nutella is becoming more popular worldwide and a frost destroyed much of this season’s crop. How do these occurrences affect the market for hazelnuts? 82. Financial Innovation More and more of the back office tasks for commodity traders and market makers can be easily automated which lowers the costs of making transactions. What is the effect of these technical changes on the bid-ask spreads between commodity buyers and sellers at commodity exchanges? [Show More]

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