Questions

1. A survey indicated that chocolate ice cream is America’s favorite ice-cream flavor. For each of the
following situations, indicate
•the possible effects on demand and/or supply (draw these on the graph)
•the possible effects on equilibrium price
•the quantity of chocolate ice cream
a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-producing cattle
in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice
cream.
b. A new report by the American Medical Association reveals that chocolate does, in fact, have
significant health benefits.
c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.
d. New technology for mixing and freezing ice cream lowers manufacturers’ costs of producing
chocolate ice cream.
Situation A Situation C

P What will happen to P What will happen to

S1 the equilibrium price? S1 the equilibrium price?

What will happen to What will happen to

D1 the quantity of ice cream? D1 the quantity of ice cream?

Q Q

Situation B Situation D

P What will happen to P What will happen to

S1 the equilibrium price? S1 the equilibrium price?

What will happen to What will happen to

D1 the quantity of ice cream? D1 the quantity of ice cream?

Q Q

2. Why do you think the equilibrium price is sometimes called the market-clearing price?

3. Should the Congress repeal the minimum wage? Why or why not?
Note: My thanks to Mr. Laurence Brown for providing the following questions.

4. Which of the following would NOT cause a change in the long-run supply of beef?
a. A decrease in the price of beef. c. an increase in the price of cattle feed
b. a decrease in the price of cattle feed d. an increase in the cost of transporting cattle

5. A multi-year drought in Florida has dried the land so much that rampant wildfires have destroyed
many orange groves. Florida oranges supply much of the nation’s orange juice. In this situation,
which of the statements below is correct?
a. The price of orange juice will rise because of a movement up the supply curve.
b. The price of orange juice will rise because the supply curve will shift to the left.
c. The price of orange juice will fall because of a movement down the supply curve.
d. The price of orange juice will fall because the supply curve will shift to the right.

6. Mr. Brown wears a particular style of haircut. If his students want to copy his look,
a. the price of the style of haircut will rise because of a movement up the supply curve.
b. the price of the haircut will rise because the supply curve will shift to the left.
c. the price of the haircut will fall because of a movement down the supply curve.
d. the price of the haircut will fall because the supply curve will shift to the right.

7. “Falling oil prices have caused a sharp decrease in the supply of oil.” Speaking precisely and in
economics terms, the statement is
a. correct, because a decrease in price always causes a decrease in supply.
b. incorrect, because a decrease in price causes an increase in supply, not a decrease
c. incorrect, because a decrease in price causes an increase in the quantity supplied, not a decrease in
supply
d. incorrect, because a decrease in price causes a decrease in quantity supplied, not a decrease in supply

8. All of the following will shift the supply curve of yo-yos to the right EXCEPT
a. an increase in the price of yo-yos
b. an improvement in the production processes used to make yo-yos
c. a reduction in the price of plastic from which yo-yos are made
d. an improvement in storage facilities resulting in fewer defective yo-yos

9. If the price of a good is currently below equilibrium, there is a __________ of the product. We
would expect prices to _____________ .
a. shortage… rise c. surplus… rise
b. shortage… fall d. surplus… fall

10. Good Humor ice cream is an inferior good; Ben and Jerry’s ice cream is a normal good. As Tom’s
income decreases we would expect his
a. demand for Good Humor to increase c. demand for Good humor to decrease
b. quantity demanded for Good Humor to increase d. demand for Ben and Jerry’s to increase