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Principles of Economics,
CHAPTER 4 Demand and Supply Applications
9e
; ; By
Karl E. Case,
Ray C. Fair &
Sharon M. Oster
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CHAPTER 4 Demand and Supply Applications
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PART I INTRODUCTION TO ECONOMICS
Prepared by:
Fernando & Yvonn Quijano
© 2009 Pearson Education, Inc. Publishing as Prentice Hall Principles of Economics 9e by Case, Fair and Oster
PART I INTRODUCTION TO ECONOMICS
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The Price System: Rationing and Allocating Resources
Price Rationing
Lobsters
Suppose in 2008 that 15,000
square miles of lobstering waters
off the coast of Maine are closed.
The supply curve shifts to the left.
Before the waters are closed, the
lobster market is in equilibrium at
the price of $11.50 and a quantity
of 81 million pounds. The
decreased supply of lobster leads
to higher prices, and a new
equilibrium is reached at $16.10
and 60 million pounds (point B).
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Refer to the graph below. At what price level is price rationing
especially necessary?
a. At $3.25.
b. At $2.50.
c. At $1.75.
d. None of the above. Price rationing is never desirable.
CHAPTER 4 Demand and Supply Applications
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Refer to the graph below. At what price level is price rationing
especially necessary?
a. At $3.25.
b. At $2.50.
c. At $1.75.
d. None of the above. Price rationing is never desirable.
CHAPTER 4 Demand and Supply Applications
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Refer to the figure. Start at point C. What is the impact of the shift in supply
on the demand side of the market?
a. After the shift in supply, there is a decrease in quantity demanded.
b. After the shift in supply, there is a decrease in demand.
c. After the shift in supply, there is an increase in demand.
d. After the shift in supply, there is an increase in quantity demanded.
CHAPTER 4 Demand and Supply Applications
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Refer to the figure. Start at point C. What is the impact of the shift in supply
on the demand side of the market?
a. After the shift in supply, there is a decrease in quantity demanded.
b. After the shift in supply, there is a decrease in demand.
c. After the shift in supply, there is an increase in demand.
d. After the shift in supply, there is an increase in quantity demanded.
CHAPTER 4 Demand and Supply Applications
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The Price System: Rationing and Allocating Resources
Price Rationing
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Refer to the figure below. The price of the good in question in this graph is
primarily determined by:
a. Demand.
b. Supply.
c. Consumer surplus.
d. None of the above. The price is indeterminate.
CHAPTER 4 Demand and Supply Applications
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The Price System: Rationing and Allocating Resources
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The Price System: Rationing and Allocating Resources
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The Price System: Rationing and Allocating Resources
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Refer to the figure. Assume that the price
of $1.75 is a government imposed
price. Only one of the statements
below is entirely correct. Which one?
a. At a price of $1.75, there is a surplus
of soybeans, which is the result of an
imposed price floor.
b. At a price of $1.75, there is a
CHAPTER 4 Demand and Supply Applications
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Refer to the figure. Assume that the price
of $1.75 is a government imposed
price. Only one of the statements
below is entirely correct. Which one?
a. At a price of $1.75, there is a surplus
of soybeans, which is the result of an
imposed price floor.
b. At a price of $1.75, there is a
CHAPTER 4 Demand and Supply Applications
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The Price System: Rationing and Allocating Resources
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The Price System: Rationing and Allocating Resources
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The Price System: Rationing and Allocating Resources
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The Price System: Rationing and Allocating Resources
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The rationale most often used by governments to intervene in the
market system and try to determine its own rationing mechanism
is:
a. Efficiency and productivity.
b. Fairness.
c. Queuing.
d. Elasticity.
CHAPTER 4 Demand and Supply Applications
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The rationale most often used by governments to intervene in the
market system and try to determine its own rationing mechanism
is:
a. Efficiency and productivity.
b. Fairness.
c. Queuing.
d. Elasticity.
CHAPTER 4 Demand and Supply Applications
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The Price System: Rationing and Allocating Resources
Price Floors
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Supply and Demand Analysis: An Oil Import Fee
FIGURE 4.5 The U.S. Market for Crude Oil, 1989
CHAPTER 4 Demand and Supply Applications
At a world price of $18, domestic If the government levies a 33 1/3 percent tax on
production is 7.7 million barrels per day imports, the price of a barrel of oil rises to $24. The
and the total quantity of oil demanded in quantity demanded falls to 12.2 million barrels per
the United States is 13.6 million barrels day. At the same time, the quantity supplied by
per day. The difference is total imports domestic producers increases to 9.0 million barrels
(5.9 million barrels per day). per day and the quantity imported falls to 3.2 million
barrels per day.
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Refer to the figure below. Imposition of the oil import fee causes the
quantity of imports to:
a. Increase by 10 million barrels.
b. Decrease by 10 million barrels.
c. Decrease by 20 million barrels.
d. Decrease by 30 million barrels.
e. Decrease by 50 million barrels.
CHAPTER 4 Demand and Supply Applications
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Refer to the figure below. Imposition of the oil import fee causes the
quantity of imports to:
a. Increase by 10 million barrels.
b. Decrease by 10 million barrels.
c. Decrease by 20 million barrels.
d. Decrease by 30 million barrels.
e. Decrease by 50 million barrels.
CHAPTER 4 Demand and Supply Applications
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Supply and Demand and Market Efficiency
Consumer Surplus
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Supply and Demand and Market Efficiency
Consumer Surplus
CHAPTER 4 Demand and Supply Applications
Producer Surplus
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Supply and Demand and Market Efficiency
Producer Surplus
CHAPTER 4 Demand and Supply Applications
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Refer to the figure below. How much are suppliers willing to receive in
order to produce 1 million hamburgers?
a. $5.00 per hamburger.
b. $2.50 per hamburger.
c. $0.75 per hamburger.
d. Anywhere between $2.50 and $5.00 per hamburger.
CHAPTER 4 Demand and Supply Applications
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Supply and Demand and Market Efficiency
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Supply and Demand and Market Efficiency
overproduction.
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Supply and Demand and Market Efficiency
CHAPTER 4 Demand and Supply Applications
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Refer to the figure. What is the impact of the
shift in supply on consumer surplus?
a. Consumer surplus decreases, from acd
to abe.
b. Consumer surplus decreases, from acf
to abg.
c. Consumer surplus increases, from gbcf
to abg.
CHAPTER 4 Demand and Supply Applications
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Refer to the figure. What is the impact of the
shift in supply on consumer surplus?
a. Consumer surplus decreases, from acd
to abe.
b. Consumer surplus decreases, from
acf to abg.
c. Consumer surplus increases, from gbcf
to abg.
CHAPTER 4 Demand and Supply Applications
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Supply and Demand and Market Efficiency
produce what people want at least cost, that is, they are efficient.
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Refer to the figure below. The market on the left produces 7 million units,
while the market on the right produces 10 million units. In which
market is the total surplus generated from production and
consumption the highest?
a. In the market on the left.
b. In the market on the right.
c. In neither market. Both markets generate the same amount of
surplus.
CHAPTER 4 Demand and Supply Applications
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Refer to the figure below. The market on the left produces 7 million units,
while the market on the right produces 10 million units. In which
market is the total surplus generated from production and
consumption the highest?
a. In the market on the left.
b. In the market on the right.
c. In neither market. Both markets generate the same amount of
surplus.
CHAPTER 4 Demand and Supply Applications
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REVIEW TERMS AND CONCEPTS
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