### Equilibrium Price, Graph, Supply, Businesses, Principles of Macroeconomics Final Quiz

The key terms in this Principles of Macroeconomics course include Equilibrium Price, Graph, Demand, Supply, Change, Businesses, Supply Curve, Demand Curve, Principles of Macroeconomics, Final Quiz

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 will decrease and quantity will increase.

Equilibrium price will increase and quantity will decrease.

Equilibrium price and quantity of oil will increase.

Equilibrium price and quantity of oil will decrease.

##### Explanation:

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.

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 in

Graph A.

Graph D.

Graph C.

Graph B.

##### Explanation:

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.

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.

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

Graph D

Graph B

Graph C

Graph A

##### Explanation:

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.

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?

Supply will increase.

Supply will decrease.

Demand will increase.

Demand will decrease.

##### Explanation:

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.