Market Disequilibrium and Changes in Equilibrium
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AP Microeconomics › Market Disequilibrium and Changes in Equilibrium
Peanut butter and jelly are considered complementary goods. If a new harvesting technique makes peanuts much cheaper to acquire, what will happen in the market for jelly?
Both the equilibrium price and quantity of jelly will decrease.
The equilibrium price of jelly will increase, and the quantity will decrease.
The equilibrium price of jelly will decrease, and the quantity will increase.
Both the equilibrium price and quantity of jelly will increase.
Explanation
Cheaper peanuts will increase the supply of peanut butter, lowering its price. Since peanut butter and jelly are complements, a lower price for peanut butter will increase the demand for jelly. An increase in demand for jelly will lead to a higher equilibrium price and a higher equilibrium quantity of jelly.
In the market for laptop computers, a decrease in demand is more than offset by a decrease in supply. Which of the following changes in equilibrium price and quantity is the most likely outcome?
The equilibrium price will increase, and the equilibrium quantity will be indeterminate.
The equilibrium price will increase, and the equilibrium quantity will decrease.
The equilibrium price will decrease, and the equilibrium quantity will decrease.
The equilibrium price will be indeterminate, and the equilibrium quantity will decrease.
Explanation
A decrease in demand pushes price and quantity down. A decrease in supply pushes price up and quantity down. Both shifts cause quantity to decrease, so the equilibrium quantity will definitely decrease. Since the decrease in supply (which pushes price up) is larger than the decrease in demand (which pushes price down), the net effect is an increase in the equilibrium price.
A widespread pest infestation destroys a significant portion of the world's cocoa crop. In the market for chocolate bars, this event will lead to which of the following changes in equilibrium?
An increase in price and an increase in quantity.
An increase in price and a decrease in quantity.
A decrease in price and a decrease in quantity.
A decrease in price and an increase in quantity.
Explanation
The destruction of the cocoa crop, a key input for chocolate, will decrease the supply of chocolate bars (shift the supply curve to the left). A decrease in supply results in a higher equilibrium price and a lower equilibrium quantity.
The supply of a unique piece of art is perfectly inelastic. If a new documentary greatly increases the public's desire to own this artwork, what will be the effect on its equilibrium price and quantity?
The equilibrium price will remain the same, but the quantity will increase.
A shortage will be created, but the price will not change due to the fixed supply.
The equilibrium price will increase, but the equilibrium quantity will remain the same.
Both the equilibrium price and the equilibrium quantity will increase significantly.
Explanation
Perfectly inelastic supply means the quantity supplied is fixed and does not change regardless of price (a vertical supply curve). Increased public desire means an increase in demand (a rightward shift of the demand curve). This will cause the equilibrium price to rise, but the equilibrium quantity cannot change because it is fixed.
If consumer incomes increase and smartphones are a normal good, what is the expected impact on the equilibrium price and quantity of smartphones?
Equilibrium price will increase, and equilibrium quantity will increase.
Equilibrium price will decrease, and equilibrium quantity will decrease.
Equilibrium price will increase, and equilibrium quantity will decrease.
Equilibrium price will decrease, and equilibrium quantity will increase.
Explanation
An increase in consumer incomes will cause the demand for a normal good, like smartphones, to increase (shift to the right). This shift leads to a higher equilibrium price and a higher equilibrium quantity.
If a new, more efficient production technology is introduced in a perfectly competitive market, how will consumer surplus and producer surplus be affected in the new equilibrium?
Consumer surplus will increase; the effect on producer surplus is indeterminate.
Both consumer surplus and producer surplus will definitely increase.
Producer surplus will increase, and consumer surplus will definitely decrease.
Consumer surplus will increase, and producer surplus will definitely decrease.
Explanation
A more efficient technology increases supply, shifting the supply curve to the right. This leads to a lower equilibrium price and a higher equilibrium quantity. The lower price unambiguously increases consumer surplus. Producer surplus is the area above the supply curve and below the price. While the quantity increases, the price falls, so the net effect on producer surplus depends on the elasticities of the curves and is therefore indeterminate without more information.
In the market for coffee, if the current price is below the equilibrium price, which of the following will occur?
The demand curve for coffee will shift to the left to restore the market to equilibrium.
A shortage will be created, which will exert upward pressure on the price.
The supply curve for coffee will shift to the right to meet the higher demand.
A surplus will be created, which will exert downward pressure on the price.
Explanation
When the price is below equilibrium, the quantity demanded exceeds the quantity supplied, creating a shortage (or excess demand). Buyers will compete for the limited goods, bidding the price up toward the equilibrium level.
Suppose the market price for gasoline is set at $$P_1$$, which is above the market-clearing price. Which of the following describes the resulting market condition and the direction of price pressure?
A decrease in supply, as producers cut back due to lower sales, putting upward pressure on price.
A surplus, as quantity supplied exceeds quantity demanded, creating downward pressure on price.
An increase in demand, as consumers anticipate future price drops, putting downward pressure on price.
A shortage, as quantity demanded exceeds quantity supplied, creating upward pressure on price.
Explanation
A price above the equilibrium price incentivizes producers to supply more while discouraging consumers from buying as much. This leads to a situation where quantity supplied is greater than quantity demanded, known as a surplus. To sell their excess inventory, producers will lower the price.
In the market for electric vehicles (EVs), there is a simultaneous increase in consumer preference for EVs and a technological breakthrough that lowers production costs. What are the definite effects on the equilibrium price and quantity?
Equilibrium quantity will decrease; the effect on equilibrium price is indeterminate.
Equilibrium price will decrease, and equilibrium quantity will increase.
Equilibrium price will increase; the effect on equilibrium quantity is indeterminate.
Equilibrium quantity will increase; the effect on equilibrium price is indeterminate.
Explanation
Increased consumer preference shifts demand to the right, which increases both price and quantity. Lower production costs shift supply to the right, which decreases price and increases quantity. Since both effects increase quantity, the equilibrium quantity will definitely increase. However, the price effect is indeterminate because the demand shift pushes the price up while the supply shift pushes it down.
The market for rental apartments in a city experiences a large influx of new residents while several large apartment buildings are condemned and demolished. Which of the following is the most likely outcome for the equilibrium price and quantity of rental apartments?
The equilibrium price will increase; the effect on equilibrium quantity is indeterminate.
The equilibrium price will decrease, and the equilibrium quantity will be indeterminate.
The equilibrium quantity will decrease; the effect on equilibrium price is indeterminate.
Both the equilibrium price and quantity will increase, but the price increase will be larger.
Explanation
The influx of new residents increases the demand for apartments (demand shifts right), which pushes price and quantity up. The demolition of buildings decreases the supply of apartments (supply shifts left), which pushes price up and quantity down. Since both shifts cause the price to rise, the equilibrium price will definitely increase. The effect on quantity is indeterminate because the demand shift increases it while the supply shift decreases it.