Markets in action

the resources used to produce wheat become less productivethe demand for wheat increasesthe prices of the resources used to produce wheat fallCorrectthe price of corn and other grains increases ExplanationIf the prices of the resources used to produce wheat fall, the cost of production will fall. With the reduced cost of production, the producer's profits will increase. Therefore, the producer will increase the supply of wheat.

the quantity demanded and the quantity supplied of cotton will be equalmore cotton will be imported into the country to increase supplythere will be an excess of supply over demand for cottonCorrectsellers may seek to sell cotton illegally above the price floor ExplanationIf the government sets £3 as the price floor for a bale of cotton when the equilibrium price is £1.50, there will be a surplus of cotton in the market.

the equilibrium price will increase but the equilibrium quantity will decreasethe equilibrium price will decrease but the equilibrium quantity will increaseIncorrectboth the equilibrium price and quantity will decreaseboth the equilibrium price and quantity will increaseCorrect ExplanationWhen the demand for a good increases without any change in supply, both the equilibrium price and quantity increase.

Which of the following statements is true? A decrease in demand from QD2 to QD1 leads to a rise in the equilibrium price.As price increases along the supply curve QS1, output will increase more than proportionately.An increase in demand will lead to a relatively larger change in output along QS2.The supply curve QS1 is elastic and QS2 is inelastic.Correct ExplanationAn increase in demand increases the equilibrium output by a greater amount when the supply is elastic.

buyers have an incentive to leave the marketsellers earn supernormal profitssellers have an incentive to leave the marketboth buyers and sellers mutually benefit from tradeCorrect ExplanationAt an equilibrium price, consumers’ willingness to demand is exactly equal to firms’ willingness to supply. Therefore, both buyers and sellers mutually benefit and a trade will occur.

lead to an increase in the equilibrium quantityCorrectlead to an increase in the equilibrium priceshift the supply curve to the left make the supply curve more elastic ExplanationIf there is an increase in the number of competing firms in the market, then the supply curve shifts to the right. The equilibrium quantity increases and the equilibrium price falls.

the demand curve for bread will shift to the rightthe equilibrium quantity of bread will increasethe supply curve for bread will shift to the leftthe equilibrium price of bread will decreaseCorrect ExplanationIf the consumer's income level increases and the demand for bread decreases, then the demand curve shifts to the left. The equilibrium price and quantity decrease if the supply of bread is unchanged.

the quantity demanded of biscuits will increasethe demand for biscuits will decreasethe quantity supplied of biscuits will increasethe supply of biscuits will decreaseCorrect ExplanationIf the prices of the factors of production used to produce biscuits increase, the cost of producing biscuits will increase, reducing the seller's profits. Therefore, the producer will reduce the supply of biscuits, shifting the supply curve to the left.

Since demand and supply curves intersect, the market will always be in equilibrium.As prices rise, the amount of a good that consumers buy increases.A position of disequilibrium in the market is corrected by market forces.CorrectAs price falls, the amount of a good producers are willing to put on the market for sale increases. ExplanationIf the market is in disequilibrium, negotiations and resulting price changes will push the market towards its equilibrium position.

If the market price is £10: the consumers' willingness to pay is lower than the sellers' willingness to supply.there is a shortage in the market.Correctsellers will discount the price until the excess supply is sold.the market is in equilibrium. ExplanationAt £10, the market price is below the equilibrium price. At that price, consumers demand a higher quantity than what sellers are willing to supply. As a consequence, there is a shortage in the market.

the equilibrium price and quantity of furniture will fallthe equilibrium price of furniture will fall while the equilibrium quantity will increaseCorrectthe equilibrium price and quantity of furniture will increasethe equilibrium price of furniture will increase while the equilibrium quantity will decrease ExplanationWhen the costs of inputs decrease, the supply curve shifts to the right; the equilibrium price falls and the equilibrium quantity increases.

If the minimum price of the good is set at £2, which of the following is likely to happen? There will be a surplus of 200 units in the market.CorrectThe minimum price will not affect quantity demanded or supplied as it is set above the equilibrium price.The total quantity of the good bought and sold in the market will be equal to 200 units.The imports of the good will increase. ExplanationIf the price floor is set at £2 above the equilibrium price, the quantity supplied will be 300 units and...

The quantity of goods bought in a market has to be equal to the quantity of goods sold.CorrectThe demand curve and supply curve intersect at all the different equilibrium points.At the equilibrium price, sellers benefit more from trade than buyers.For a market to be in equilibrium, the number of buyers needs to be equal to the number of sellers. ExplanationThe quantity supplied and demanded, and the level of demand and supply is always subject to change. But the amount of goods sold is always...

poolingCorrectpartialseparatingNash ExplanationA pooling equilibrium is a market where demand and supply for good and poor products pool into one demand and one supply. A clear distinction between the quality of the products in the market is not possible.

The price needs to fall for the market to be in equilibrium.CorrectThe elasticity of demand for good X is low.There is a shortage in the market for good X.Buyers will negotiate with sellers and bid up the price of good X. ExplanationSince the quantity of good X supplied exceeds the quantity of good X demanded, there is a surplus in the market. The price needs to fall for the market to be in equilibrium.

When QD1 shifts to QD2, _____. the equilibrium quantity of labour and the wage level remain unchangedthe supply of labour exceeds the demand for labourthe quantity of labour supplied increasesCorrectthe wage level falls to W3 ExplanationWhen the demand for labour increases and supply remains unchanged, the equilibrium quantity of labour and the wage level increase.

decrease both the price of the good and the equilibrium quantity.increase both the price of the good and the equilibrium quantity.increase the price of the good but will decrease the equilibrium quantity.decrease the price of the good but will increase the equilibrium quantity.Correct ExplanationWhen supply increases and the demand remains unchanged, the equilibrium quantity increases but the equilibrium price falls.

Suppose price of a ticket is reduced to £15. Which of the following is likely to happen? The buyers in the market will face a shortage of 50 tickets.CorrectThe number of tickets sold will be equal to 250.The demand curve will become vertical.The supply curve will become less inelastic as the price falls. ExplanationWhen the price of a train ticket is reduced, all the seats on the train (200) are sold. At this lower price, buyers demand 50 units more than what is available.

the costs of capital used in producing the good increase.the costs of labour used in producing the good increase.some firms in the market close down and exit the market.a cost-reducing technology is introduced in production.Correct ExplanationBy implementing a cost-reducing technology, the producer will be able to supply greater quantities of the product. Therefore, the supply curve shifts to the right.

market prices are very low.the quantity supplied is greater than the quantity  emanded.demand for the good is falling.the price in the market is below the equilibrium price.Correct ExplanationAt an equilibrium price, quantity demanded is exactly equal to quantity supplied. At a price below the equilibrium price, the quantity demanded exceeds quantity supplied.

Supply and demand scheduleEquilibrium (price and quantity) a state that occurs in a market when the price is such that the quantity that consumers wish to buy is exactly balanced by the quantity that firms wish to supply.• Competitive markets-numerous sellers in a market and so one firm does not have any influence in the price of a good or service.• Can also be called: market clearing price or market clearing quantity .• The equilibrium price and quantity would not change unless there was a...