Name __________________________________________________ Date ______________________________
Assessment: Markets, Equilibrium, and Prices
Mastering the Content
1. Which of these situations best illustrates market equilibrium?
A. The price of soap does not vary much from week to week.
B. Soap production ensures a good profit for the manufacturer.
C. Everyone who wants or needs soap can easily afford to buy it.
D. The amount of soap made matches the amount of soap that people want to buy. CORRECT
2. How is the market-clearing price determined?
A. It is fixed by each manufacturer.
B. It is reached through trial and error. CORRECT
C. It is calculated by economic analysts.
D. It is set by a government commission.
3. How is the market-clearing price determined?
A. It is fixed by each manufacturer.
B. It is reached through trial and error. CORRECT
C. It is calculated by economic analysts.
D. It is set by a government commission.
4. The equilibrium price is the price at which
A. consumers start reducing demand.
B. producers' total revenue is highest.
C. demand and supply curves intersect. CORRECT
D. neither demand nor supply will shift.
5. If a manufacturer introduces a new product with a successful advertising campaign and an artificially low introductory
price, which of these will most likely result?
A. equilibrium
B. rationing
C. surplus
D. shortage CORRECT
6. Which event in Florida and California would most likely shift the supply curve for orange juice to the left?
A. an influx of new low-wage workers
B. an early frost accompanied by ice storms CORRECT
C. evidence that citrus fruit strengthens bones
D. rise of mango juice as a popular breakfast drink
7. Which of these might best signal furniture makers to cut back production?
A. a fall in the cost of essential raw materials
B. an increase in availability of skilled workers
C. an introduction of competitors into the market
D. a drop in the price consumers are willing to pay CORRECT
8. What is the usual result of setting a price ceiling on rents?
A. People can find apartments but cannot afford to rent them.
B. Houses are broken up into apartments to meet the demand.
C. More people want to rent apartments than are available to rent. CORRECT
D. Construction jobs increase with the building of new apartment buildings.
9. New Deal jobs programs offered employment during the Great Depression. In economic terms, such programs were
designed to respond to
A. a shortage of skills.
B. a lack of incentives.
C. a surplus of workers. CORRECT
D. an excess of services.
10. The purpose of rationing during World War II was to ensure that
A. manufacturers could make a profit.
B. everyone could get essential scarce goods. CORRECT
C. workers would have an incentive to get jobs.
D. products would go to those who valued them most.
11. The most important argument many economists make against price controls is that they are
A. unfair.
B. unstable.
C. insecure.
D. inefficient. CORRECT
Exploring the Essential Question
How do you know when the price is right?
In the remote community of Kitefield, the cultural event of the year is the annual kite festival. Some residents
work year round making handcrafted kites to sell at the festival. Kite making is a significant source of income
for them.
12. Lines D and S1 represent the usual demand and supply for kites during the festival. Use the graph to determine the
market-clearing price. Also determine the equilibrium quantity. $20, 400 kites
13. One year, newcomers arrive in Kitefield and establish a kite-production facility. Their presence shifts the supply curve
to S2. Explain how this can be expected to affect the price of kites and the number of kites sold. The equilibrium price
can be expected to drop to $10, with sales of 500 kites altogether.
14. The Kitefield town council is concerned about a possible loss of income to the long-established kite makers in town.
To protect their income, the council passes an ordinance forbidding the sale of kites at any price below $15. Analyze
the probable impact of the ordinance. The ordinance will increase revenue, but kite makers will not be able to sell all
the kites they make at that price. A total of 600 kites will be produced, and only 450 will be sold.
15. Outline your recommendation to the Kitefield town council regarding the price of kites. Describe how your
recommendation will affect producers, consumers, and the supply of kites for the festival. Accept any reasonable
recommendation that is accompanied by analysis of the effects on producers, consumers, and the supply of kites for
the festival. Possible answer: I would recommend allowing kite sales at the market-clearing price but introducing new
events to try to increase demand. Without a shift in demand, while consumers would enjoy a lower price ($10, down
from the usual $20) and there would be lots of kites for the festival (500, up from 400 in past years), producers will
make much less total revenue—$5,000 (including the newcomers), compared to $8,000 in past years spread over fewer
kite makers. So I would try to shift the demand curve to the right, perhaps even far enough to bring the market price up
to its former level.