Question

* The market for leather basketballs is currently in equilibrium. If the cost of leather increases for basketball producers, you would expect to see a ________ price and a(n)______ quantity in the market for basketballs.

1. Higher; Higher
2. Lower; Higher
3. Higher; Ambiguous change in the …
4. Higher; Lower

* When the demand for chocolate bars decreases, both the equilibrium market price and the equilibrium quantity will decrease. (TRUE OR FALSE)

Suppose the market price for peaches is $1 a pound. If the government places a price ceiling at $2 per pound, you would expect to see a surplus of peaches on the market. (TRUE OR FALSE)

Answer 1

1. If the cost of leather increases, then the supply of leather basket ball decreases, therefore the supply curve shifts to the left and as a result we would expect to see a higher price and a lower quantity in the market for basketballs. Hence, option(D) is correct.

2. TRUE When demand for chocolate bars decreases, then the demand for chocolate bars shift to the left and as a result equilibrium price and equilibrium quantity would decrease.

3. FALSE because If price is $1 , then a price ceiling of $2 per pound would not effect the market equilibrium because price ceiling above the equilibrium price is unbinding.