A. Sorry! Incorrect. Demand for Rare Gordon™ shoes will not rise if the price of the shoes increases.
B. Sorry! Incorrect. Demand for Rare Gordon™ shoes will not fall. Quantity demanded will fall.
C. Correct. Nothing will happen to demand because price affects quantity demanded, not demand.
D. Sorry! Incorrect. Demand will neither rise nor fall when the price changes.
E. Sorry! Incorrect. Demand will neither rise nor fall when the price changes.
4-2 The Bump® shoes and Rare Gordon™ shoes are substitutes. The supply of Rare Gordon™ shoes rises, causing the price of Rare Gordon™ to fall. What will happen to the market for The Bump® shoes?
A. Incorrect. Demand for The Bump® shoes will fall, not rise.
B. Correct!.Demand for The Bump® shoes will fall.
C. Incorrect. Supply for The Bump® shoes will not change (although the quantity supplied may).
D.Incorrect. Supply for The Bump® shoes will not change (although the quantity supplied may).
E. Incorrect. Demand for a good is affected by changes in the price of substitute goods.
4-3 Bic disposable razors and shaving cream are complements. Higher costs of manufacturing cause the price of shaving cream to rise. What do you think will happen to Bic razors in equilibrium?
A.Incorrect. If the price of a complement rose, demand would not rise for razors.
B. Correct. Both the price and quantity sold of Bic razors will fall, since razor demand will fall, due to the increase in a complements's price.
C. Incorrect. If a complement's price rises, demand will fall. The price of Bic razors will not rise. Quantity sold will fall, so this part is correct..
D. Incorrect. Incorrect. If a complement's price rises, demand will fall. The quantity of Bic razors will not rise. Price will fall, so this part is correct.
4-4 Demand for X will fall...
A. Incorrect. A change in the price of X will affect quantity demanded, not demand.
B. Incorrect. Changes in supply do not affect demand.
C. Incorrect. If the price of a complement for X falls, demand for X will rise, not fall.
E. Incorrect. Some of the above do not affect demand at all, and some will raise demand..
4-5. The price of video recorders has fallen. From this observation, we might expect ...
A. Incorrect. If the price of a complement falls, we expect the demand for (and thus the price of) video tapes will rise, other things remaining the same.
B. While it is true that the quantity of video tapes sold will rise (the price of a complement has fallen, and thus demand for video tapes will rise), that is not all that will happen.
C. While it is true that the price of video tapes sold will rise (the price of a complement has fallen, and thus demand for video tapes will rise), that is not all that will happen.
D. Incorrect. A will not occur.
E. Correct When the price of a complement falls, we expect the demand for videotapes will rise, if everything else is the same. This would cause an increase in both the price and the quantity of videotapes.
4-6 Between 1960 and 1966, the price of physicians' services increased by 35% (after accounting for inflation). Quantity of services delivered did not change during this time. The best explanation for this is
A. Incorrect. An increase in supply only would cause an increase in quantity and a fall in price.
B. Incorrect. An increase in both demand and supply would result in larger quantity and little or no change in price (the larger demand would tend to raise price, while the larger supply would tend to lower price).
C. Incorrect. An increase in demand only would raise price, but would also raise the quantity.
D. Correct. An increase in demand and a reduction in supply would raise price. The larger demand would tend to raise quantity while the reduced supply would tend to lower quantity, canceling each other out.
E. Incorrect. An increase in supply and a reduction in demand would cause price to fall, not rise. It is possible that quantity could remain unchanged in this case though.
4-7 Which of the following is most likely to lower the demand for Bart's Root Beer in Springfield?
A. Incorrect. This would raise demand.
B. Correct. The lower price of a substitute will lower demand.
C. Incorrect. Higher prices of substitutes will raise demand.
D. Incorrect. This is likely to raise demand.
E. Incorrect. Higher prices for the Root Beer will lower quantity demanded, not demand.
4-8 Which of the following is most likely to lower the demand for Bart's Root Beer in Springfield?
A. Incorrect. This would likely raise demand (if root beer is a normal good).
B. Incorrect. If the price of a substitute is raised, demand for root beer will rise.
C. Correct. If the price of a complement goes up, demand will fall for root beer.
D. Incorrect. This would likely raise demand.
E. Incorrect. Higher prices for the Root Beer will lower quantity demanded, not demand.
4-9 Quotas restricting the importation of Japanese automobiles will have what effects on the supply and demand for domestically produced automobiles?
A. Incorrect. Foreign cars are substitutes for domestic cars.
B. Incorrect. The supply of domestic cars will not change unless the cost of making them changes. Demand for domestic cars will increase as the substitute is less available, however.
C. Correct. As demand for domestic cars increases, quantity supplied of domestic cars will increase (not supply).
D. Incorrect. Supply will increase only if costs fall. Demand (not just quantity demanded) of domestic cars will increase.
E. Incorrect. Demand will increase, but supply will only decrease if costs fall.
4-10 "Hurricanes in Florida are bringing financial gains to California citrus growers. Because of damage to the Florida citrus crop, California citrus products are commanding the highest prices ever." The economics of this statement is best explained in
A. Correct. The supply of Florida oranges has decreased, causing their prices to rise and the demand for the substitute California oranges to rise.
B. Incorrect.The supply of Florida oranges has decreased, but supply of the substitute California oranges will not change right away (until costs in Cal. change).
C. Incorrect.The demand for Florida oranges will not change just because the supply is reduced, unless you are told something about expectations.
D. Incorrect.The demand for Florida oranges will not fall just because the supply is reduced. Even so, the fall in prices of one state's oranges would not raise demand for other states' oranges.
E. Incorrect A fall in supply of Florida oranges would raise their price.