LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
29. Suppose that market demand for a good slopes downward and market supply
slopes upward. Equilibrium price is now $10 and 500,000 units of the good
are traded at this price. Suppose now that the cost at which each unit of the
good is produced falls. What is the likely effect of this change on the market
equilibrium?
a) Excess supply.
b) A fall in price.
c) A shift in demand to the right.
d) An increase in price.
Ans: B
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
30. Suppose the equilibrium price in a market is $5, and the government imposes
a $4.50 price floor on the market. This will
a) create excess supply.
b) create excess demand.
c) shift the demand curve to the right.
d) have no effect on the market.
Ans: D
Difficulty: Hard
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
10
31. Suppose the equilibrium price in a market is $5, and the government imposes
a $4.50 price ceiling. This will
a) Create excess demand.
b) Create excess supply.
c) Shift the supply curve to the left.
d) Have no effect.
Ans: A
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
32. Suppose the equilibrium rent for apartments in New York City is $2000 per
month. If the city authorities declared effective tomorrow that rents would not
be allowed to exceed $1800 per month, what do you think would happen to
the relationship between supply and demand for rental apartments in New
York City?
a) The supply of rental apartments would go up and rents would fall
below $1800 per month.
b) There would be very little new construction of apartments in New
York City and shortages would develop.
c) People would move out of New York City because of the new
restrictions.
d) The demand for apartments would fall short of available supply.
Ans: B
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
33. Movements along a demand curve caused by a change in price probably
means that:
a) There has been an endogenous shift in the demand curve.
b) There has been an exogenous shift in the demand curve.
c) There has been a shift in an exogenous factor that affects supply.
d) The supply curve is not shifting.
Ans: C
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
11
34. Which of the following statements is true?
a) Endogenous changes to demand and supply curves cause them to shift.
b) Exogenous changes can never affect both the demand and supply
curves.
c) Exogenous changes can sometimes affect both the demand and supply
curves.
d) Movement along a demand curve means that only an endogenous
factor is changing.
Ans: C
Difficulty: Medium
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
35. Currently, 100,000 units of a good are traded on a market. The government
imposes a limit of a maximum of 50,000 units that may be traded on the
market. This will:
a) create excess supply.
b) create excess demand.
c) raise price
d) have no effect on the market.
Ans: C
Difficulty: Hard
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
36. Currently, 100,000 units of a good are traded on the market. The government
imposes a tax on producers that raises the unit cost of production of the good.
This will:
a) shift the supply curve to the left.
b) shift the supply curve to the right.
c) shift the demand curve to the left.
d) increase the quantity traded.
Ans: A
Difficulty: Hard
Heading: Three Key Analytical Tools
LO 2 Describe the concepts of constrained optimization, equilibrium analysis, and
comparative statics.
12
37. If we were to build a model measuring the supply of corn, which of the
following could be an example of an exogenous variable in the model?
a) The price of corn.
b) The quantity supplied of corn.
c) The quantity of rain.
d) The demand for corn.