Ch 3 Homework Quiz Correct Answers

EXAM 2 Review Biology Questions
October 11, 2019
Graeter’s Grows Through Good Management
October 13, 2019

Ch 3 Homework Quiz Correct Answers

Question 1

/ 1 pts

A recent study shows the benefits of using public transportation. Government officials have hired your consulting firm to increase the demand for public transportation. They come to you with three of their suggestions.

Suggestion 1. Reduce the price of public transportation.
Suggestion 2. Increase the price of private transportation by increasing tolls.
Suggestion 3. Offer monthly and yearly passes that reduce the price paid per ride of public transportation.

Which suggestion(s) does your firm recommend?

1

2

FEEDBACK: Increasing the price of private transportation, a substitute good, will increase demand for public transportation. Your recommendations should be made on the basis of demand increasing, not quantity demanded increasing. Ask yourself, which variable(s) changes quantity demanded and which variable(s) changes demand?

3

1 and 3

FEEDBACK: Increasing the price of private transportation, a substitute good, will increase demand for public transportation. Your recommendations should be made on the basis of demand increasing, not quantity demanded increasing. Ask yourself, which variable(s) changes quantity demanded and which variable(s) changes demand?

Question 2

/ 1 pts
According to the Food and Drug Administration, “…the ultraviolet (UV) radiation from these devices [sunlamps and tanning beds] poses serious health risks.” As a result of reading this, the local mayor decides to introduce legislation that will put a 10% excise tax on tanning consumers. From an economic point of view, this will

shift the demand curve rightward for tanning.

shift the demand curve leftward for tanning.

FEEDBACK: The excise tax lowers demand because consumers must now pay a higher tax in addition to the price they pay for the good. People will tan less because they now have to factor in the extra cost. This will be shown as a leftward shift of the demand curve.

shift the supply curve rightward for tanning.

move down along the demand curve for tanning.

FEEDBACK: The excise tax lowers demand because consumers must now pay a higher tax in addition to the price they pay for the good. People will tan less because they now have to factor in the extra cost. This will be shown as a leftward shift of the demand curve.

Question 3

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As the owner of a hotel, you have decided to lower the price for all rooms in the month of October.  What should you expect to happen?

As the price is lowered, demand for rooms will increase.

As the price is lowered, the quantity demanded of rooms will increase.

FEEDBACK: The law of demand states that quantity demanded will increase when price is lowered, all things being equal. In this case, more rooms will be sold. If only the price changes, apply the law of demand.

As the price is lowered, the demand for rooms will decrease.

As the price is lowered, the quantity demanded of rooms will decrease.

FEEDBACK: The law of demand states that quantity demanded will increase when price is lowered, all things being equal. In this case, more rooms will be sold. If only the price changes, apply the law of demand.

Question 4

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Businesses across the country are starting to install extra insulation in their buildings and warehouses. Households are now deciding to install more insulation as well. Which of the following outcomes would you predict will happen to the market for oil?

Equilibrium price and quantity of oil will increase.

Equilibrium price and quantity of oil will decrease.

FEEDBACK: Increased insulation will decrease the demand for heating oil. The demand curve for oil will shift leftward, leading to a decrease in the equilibrium price and quantity of oil.

Equilibrium price will decrease and quantity will increase.

Equilibrium price will increase and quantity will decrease.

FEEDBACK: Increased insulation will decrease the demand for heating oil. The demand curve for oil will shift leftward, leading to a decrease in the equilibrium price and quantity of oil.

Question 5

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Candy makers face high prices for cocoa butter, the special ingredient that gives chocolate its melt-in-the-mouth texture. This event will be shown in03_mi_q01_hw
Click to view larger image.

Graph A.

Graph B.

Graph C.

Graph D.

FEEDBACK: Since the cocoa butter is an ingredient in the production of chocolate, the change in the cost of this ingredient will affect the supply curve. Since the cocoa butter is more expensive, it will lower profit margins for firms, and the supply curve will shift. The demand curve does not shift, because ingredient cost does not shift the demand curve.

FEEDBACK: Since the cocoa butter is an ingredient in the production of chocolate, the change in the cost of this ingredient will affect the supply curve. Since the cocoa butter is more expensive, it will lower profit margins for firms, and the supply curve will shift. The demand curve does not shift, because ingredient cost does not shift the demand curve.

Question 6

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In order to ensure that as many individuals as possible install a smoke detector, the government recently decided to subsidize the production of smoke detectors.03_mi_q01_hw
Click to view larger image.

Which of the graphs above demonstrates the change in the market for smoke detectors?

Graph A

Graph B

FEEDBACK: The government wants households to be able to afford smoke detectors and to encourage the production of smoke detectors. As a result, subsidizing the industry and shifting the supply curve rightward will have the effect of lowering the equilibrium price and increasing the equilibrium quantity.

Graph C

Graph D

FEEDBACK: The government wants households to be able to afford smoke detectors and to encourage the production of smoke detectors. As a result, subsidizing the industry and shifting the supply curve rightward will have the effect of lowering the equilibrium price and increasing the equilibrium quantity.

IncorrectQuestion 7

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The market for breakfast cereal is currently in equilibrium.  Suddenly there is a storm that destroys the wheat that farmers had been growing for the cereal manufacturer.  What will happen to the cereal market after the storm?

Demand will increase.

Demand will decrease.

Supply will increase.

FEEDBACK: A storm that destroyed the wheat crops would cause the price of that grain to rise. Given that grains are an important input in the manufacture of cereal, the rise in the price of grain represents an increase in input prices for cereal. This is represented in the cereal market as a leftward shift of the supply curve and no change in the demand curve.

Supply will decrease.

FEEDBACK: A storm that destroyed the wheat crops would cause the price of that grain to rise. Given that grains are an important input in the manufacture of cereal, the rise in the price of grain represents an increase in input prices for cereal. This is represented in the cereal market as a leftward shift of the supply curve and no change in the demand curve.

Question 8

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There are a number goods that over time, for a variety of reasons, transition from being a normal good to an inferior good or from being an inferior good to a normal good. One such example of a good is the Toyota Camry. In the 1980s, more income for a household usually resulted in more Camrys being purchased. However, today more Toyota Camrys are purchased by households that have experienced a reduction in income.How could this happen?

Households have already purchased enough Camrys so income has little impact.

The Camry becomes a normal good because the good is now perceived as lower in quality than a Lexus.

The Camry becomes an inferior good because as consumers receive more purchasing power, they purchase more of the product.

The Camry becomes an inferior good because the good is now perceived as lower in quality than a Lexus.
FEEDBACK: A normal good like a Camry can become an inferior good if it is perceived to be a lower quality good. What causes a person with more income to buy less of a product?

FEEDBACK: A normal good like a Camry can become an inferior good if it is perceived to be a lower quality good. What causes a person with more income to buy less of a product?

Question 9

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Which of the following will cause an increase in the supply of yogurt?

An increase in the price of yogurt

An increase in the number of sellers in the market for yogurt

FEEDBACK: An increase in the supply is shown as a rightward shift of the supply curve. An increase in the number of sellers will lead to an increase in market production, and as a result, will shift the supply curve to the right.

An increase in tax on the sale of yogurt

An increase in the costs of producing yogurt

FEEDBACK: An increase in the supply is shown as a rightward shift of the supply curve. An increase in the number of sellers will lead to an increase in market production, and as a result, will shift the supply curve to the right.

Question 10

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You advise the owner of a local restaurant to lower the prices of his burgers. Which of the following is a consequence of this price change?

There is an increase in the demand for burgers.

There is an increase in demand for fries.

FEEDBACK: Since fries are a complement for burgers, lowering the price of the burger will increase demand for fries. Fewer people will cook burgers at home, because cooking burgers at home is a substitute good for getting burgers at a restaurant. Reducing the price of a burger will increase the quantity demanded, but will not shift the demand curve.

More people will cook burgers at home.

There is a decrease in demand for the restaurant burgers.

FEEDBACK: Since fries are a complement for burgers, lowering the price of the burger will increase demand for fries. Fewer people will cook burgers at home, because cooking burgers at home is a substitute good for getting burgers at a restaurant. Reducing the price of a burger will increase the quantity demanded, but will not shift the demand curve.

Question 11

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You are a producer of tortillas. In the market for tortillas, two events happen simultaneously: there is a decrease in the price of corn used to make your tortillas, and there are headlines that promote the link between eating tortillas and reducing heart attacks.Which of the following is a consequence?

There is a decrease in the price of tortillas and a decrease in the quantity of tortillas.

There is a decrease in the price of tortillas and an increase in the quantity of tortillas.

There is an increase in the price of tortillas and a decrease in the quantity of tortillas.

We know the quantity will increase, but we don’t know what will happen to the price unless we know the size of the shifts.
FEEDBACK: The cost of making tortillas has decreased due to a cheaper ingredient, so the supply of tortillas will increase. The headlines linking lower rates of heart attacks with consumption of tortillas will increase the demand for tortillas. Both of these changes increase the equilibrium quantity of tortillas. To determine whether price will increase or decrease, we need to know whether the shift in supply or the shift in demand is greater.

FEEDBACK: The cost of making tortillas has decreased due to a cheaper ingredient, so the supply of tortillas will increase. The headlines linking lower rates of heart attacks with consumption of tortillas will increase the demand for tortillas. Both of these changes increase the equilibrium quantity of tortillas. To determine whether price will increase or decrease, we need to know whether the shift in supply or the shift in demand is greater.

Question 12

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You find out that the local Walmart is having a huge sale on Mountain Dew. You rush down with the intent of buying as much Mountain Dew as you can. This would be shown as

a movement along the demand curve for Mountain Dew.

FEEDBACK: Since the sale involves a reduction of the price, you are going to be staying on your original demand curve, and moving to a lower point. This is a change in quantity demanded and a movement along the curve. If your purchase behavior were changing due to health concerns, for example, this would be shown as a shift of the demand curve.

a shift rightward of the demand curve for Mountain Dew.

a shift leftward of the demand curve for Mountain Dew.

a shift rightward of the supply curve for Mountain Dew.

FEEDBACK: Since the sale involves a reduction of the price, you are going to be staying on your original demand curve, and moving to a lower point. This is a change in quantity demanded and a movement along the curve. If your purchase behavior were changing due to health concerns, for example, this would be shown as a shift of the demand curve.

Question 13

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You’re an entrepreneur and had a great idea to sell shoes that have springs installed in them to make walking easier. However, the development costs were so high that the shoes are priced 15 times higher than shoes without springs. As a result, many of the shoes have gone unsold.What possible event could eliminate the disequilibrium in the market for shoes?

A study reveals that shoes with a spring can increase the chance of a broken leg.

There is an increase in income and “spring shoes” are a normal good.
FEEDBACK: When there are too many spring shoes available, what is revealed is a surplus, where quantity supplied is greater than quantity demanded. On a graph, a surplus is illustrated with a horizontal line above the equilibrium point. The surplus can be removed as quantity demanded increases or when quantity supplied falls. In this case, an increase in income increases the demand for normal goods like spring shoes, thus removing the surplus.

There is an increase in income and “spring shoes” are an inferior good.

There is a decrease in the price of rubber, which is an input in the production of shoes.

FEEDBACK: When there are too many spring shoes available, what is revealed is a surplus, where quantity supplied is greater than quantity demanded. On a graph, a surplus is illustrated with a horizontal line above the equilibrium point. The surplus can be removed as quantity demanded increases or when quantity supplied falls. In this case, an increase in income increases the demand for normal goods like spring shoes, thus removing the surplus.

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