Seminar 2

By Le Thanh Ha
Type I: True/False question (give a brief explanation)
1. In a market economy, supply and demand determine both the quantity of each good
produced and the price at which it is sold.
2. In a competitive market, the quantity of each good produced and the price at which
it is sold are not determined by any single buyer or seller.
3. The law of demand states that, other things equal, when the price of a good rises,
the quantity demanded of the good rises, and when the price falls, the quantity
demanded falls.
4. When quantity supplied exceeds quantity demanded at the current market price, the
market has a surplus and market price will likely rise in the future to eliminate the
surplus.
5. An increase in demand will cause an increase in price, which will cause an increase
in quantity supplied.
6. If a good or service is sold in a competitive market free of government regulation,
then the price of the good or service adjusts to balance supply and demand.
7. A price ceiling set above the equilibrium price causes quantity demanded to exceed
quantity supplied.
8. A price floor set below the equilibrium price causes quantity supplied to exceed
quantity demanded.
9. If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour,
then a shortage of labor will exist.
10. A tax on sellers and an increase in input prices affect the supply curve in the same
way.

Type II: Discussion questions

Suppose we are analyzing the market for hot chocolate. Graphically illustrate the impact
each of the following would have on demand or supply. Also show how equilibrium
price and equilibrium quantity would change.
a. Winter starts and the weather turns sharply colder.
b. The price of tea, a substitute for hot chocolate, falls.
c. The price of cocoa beans decreases.
d. The price of whipped cream falls.
e. A better method of harvesting cocoa beans is introduced.
f. The Surgeon General of the U.S. announces that hot chocolate cures acne.
g. Protesting farmers dump millions of gallons of milk, causing the price of milk to
rise.
h. Consumer income falls because of a recession, and hot chocolate is considered a
normal good.
i. Producers expect the price of hot chocolate to increase next month.
j. Currently, the price of hot chocolate is $0.50 per cup above equilibrium.