Multiple-Choice Review Questions

1. If the government subsidizes the production of corn,
(A) the demand curve will shift to the left.
(B) the demand curve will shift to the right.
(C) the supply curve will shift to the left.
(D) the supply curve will shift to the right.
(E) the quantity supplied will increase along a fixed supply curve.

2. If consumers are advised that multigrain bread will substantially lessen the risk of cancer, which of the following will happen in the market for multigrain bread?
(A) The demand curve will shift to the left, decreasing the price of multigrain bread.
(B) The supply curve will shift to the left, increasing the price of multigrain bread.
(C) The demand curve will shift to the right, increasing the price of multigrain bread.
(D) The supply curve will shift to the right, decreasing the price of multigrain bread.
(E) None of the above.

3. Assume the supply of bananas decreases due to rising costs of production while demand increases due to consumer preferences. What will happen to the new equilibrium price and quantity?

Use the figure below to answer questions 4 and 5.

4. The figure shows the market for fidget spinners. Which of the following is true at $30?
(A) There is a shortage of 60 fidget spinners.
(B) There is a shortage of 40 fidget spinners.
(C) There is a surplus of 60 fidget spinners.
(D) There is a surplus of 40 fidget spinners.
(E) The market is in equilibrium with no surplus or shortage.

5. Which of the following is true if the government sets a price ceiling at $30? (Note that the price ceiling is set above the equilibrium price.)
(A) There is a shortage of 60 fidget spinners.
(B) There is a shortage of 40 fidget spinners.
(C) There is a surplus 60 fidget spinners.
(D) There is a surplus of 40 fidget spinners.
(E) The market is in equilibrium with no surplus or shortage.

6. Suppose that the demand for sugar does not change while at the same time the supply of sugar decreases. One result will be that there will be less sugar bought and sold in the market. How can this occur if there was no shift in demand?
(A) It cannot occur without a shift in the demand curve.
(B) There was a decrease in the quantity demanded as the market found a new (higher) equilibrium price.
(C) The market was in disequilibrium.
(D) The slope of the demand curve changed.
(E) There was a decrease in the quantity supplied as the market found a new (higher) equilibrium price.

7. Which of the following would cause the demand for good X to decrease?
(A) Producers of good X find that the cost of producing Y has increased dramatically.
(B) The workers who produce good X receive a large increase in wages.
(C) Goods X and Y are substitutes, and the government imposes a tax on good Y.
(D) Good X is a normal good, and the government lowers income taxes by 10%.
(E) Good X is an inferior good, and the government decreases income taxes by 15%.

8. What would happen to the market for avocados if a new study claims eating avocados improves heart health and the wages increase for workers who grow avocados?

Free-Response Review Questions

1. For each of the following simultaneous changes in demand and in supply for a product, indicate the effect on equilibrium price and equilibrium quantity.
   (a) An increase in demand and an increase in supply
   (b) A decrease in demand and a decrease in supply
   (c) An increase in demand and a decrease in supply
2. Assume the market for leather baseball gloves is in equilibrium.
   (a) Draw a correctly labeled graph of the market for leather baseball gloves, labeling the price P_E and the quantity Q_E at equilibrium.
   (b) Now assume the price of leather increases and it is an input used to produce baseball gloves. Using a correctly labeled supply and demand graph, show how this event affects the new equilibrium price and quantity for baseball gloves, labeled P₂ and Q₂.