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Equilibrium Price & Market – Principles of Macroeconomics
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Equilibrium Price, Market, Income, Spring Shoes, Surplus – Macroeconomics Quiz

The key terms in this Macroeconomics course include Market, Income, Spring Shoes, Normal Good, Surplus, Graph, Supply, Demand, Supply Curve, Equilibrium Price, Quantity

Principles of Macroeconomics.

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?

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

There is an increase in income and “spring shoes” are a normal good. – correct

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

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

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.

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

An increase in the costs of producing yogurt

An increase in tax on the sale of yogurt

Increase in the price of yogurt

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

Explanation: 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.

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.

Limited Resources & Lower Production - Macroeconomics

Click to view larger image.

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

Graph D

Graph B – correct

The 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.

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.

The Equilibrium price and quantity of oil will increase.

Equilibrium price and quantity of oil will decrease. – correct

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.