AP Microeconomics : Long-run Market Equilibrium
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Example Questions
Example Question #1 : Long Run Market Equilibrium
A price ceiling that is set above the market equilibrium price is likely to have which of the following effects, if any?
No effect; price will never equal market equilibrium price
No effect; price will equal market equilibrium price.
A surplus
A shortage
No effect; price will equal market equilibrium price.
If a price ceiling is set above market equilibrium, market forces will cause the equilibrium price to be market equilibrium price. The price ceiling will never be reached because it is too high.
To create an effective price ceiling, on the other hand, the price ceiling must be set below market equilibrium price, thus stopping price levels before they can reach market equilibrium. In such a case, a shortage is expected.
Example Question #2 : Long Run Market Equilibrium
If good X and good Y are substitutes, an increase in the price of good X will lead to which of the following?
a decrease in demand for good Y
an increase in demand for good Y
an increase in supply for good Y
a decrease in supply for good Y
an increase in demand for good Y
The change in price of a substitute good shifts demand.
An increase in the price of good X prompts consumers to use good Y instead of good X (i.e. substituting good X for good Y), resulting in increased demand for good Y.
Example Question #3 : Long Run Market Equilibrium
As consumption of a particular good increases, the satisfaction gained from consuming one additional unit of the good eventually ___________.
increases
equals 1
equals 0
decreases
decreases
The law of diminishing marginal utility states that as consumption of a particular good increases, the satisfaction gained from consuming one additional unit (i.e. the marginal utility of the good) eventually decreases.
For example, consider eating chocolate bars. The increase in satisfaction resulting from eating the first chocolate bar is probably higher than the increase in satisfaction from eating the 12th chocolate bar. In other words, the marginal utility has decreased.
Example Question #3 : Quantity Equilibrium
If the market for Good X is in equilibrium, which of the following would NOT cause a decrease in demand for Good X?
Consumers expect that the price of Good X will decrease.
The price of a substitute good increases.
The number of buyers of Good X decreases.
The price of a substitute good decreases.
A newspaper reports that Good X is harmful to the health of consumers.
The price of a substitute good increases.
Of the five answer choices, only an increase in the price of a substitute good would cause the demand curve to increase. This result reflects the fact that when the price of the substitute good increases, consumers are less likely to buy that good and instead buy more of Good X.
All of the other answer choices would cause the demand curve to decrease.
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