Multiple-Choice Questions
1. If the market for a certain product experiences an increase in supply and a decrease in demand, which of the following results is expected to occur?
a. Both equilibrium price and the equilibrium quantity could rise or fall.
b. Equilibrium price would rise, and the equilibrium quantity could rise or fall.
c. Equilibrium price would fall, and the equilibrium quantity could rise or fall.
d. Equilibrium price would fall, and the equilibrium quantity would fall.
2. Suppose there are nine sellers and nine buyers, each willing to buy or sell one unit of a good, with values {$10, $9, $8, $7, $6, $5, $4, $3, $2}. Assuming no transactions costs and a competitive market, what is the equilibrium price in this market?
a. $5
b. $6
c. $7
d. $8
3. If the government imposes a price floor at $9 (i.e., price must be $9 or higher) in the above market, how many goods will be traded?
a. Five
b. Four
c. Three
d. Two
4. Suppose there is a single market maker in this market. What is the optimal bid–ask spread?
a. $2 bid; $10 ask
b. $4 bid; $8 ask
c. $5 bid; $7 ask
d. $6 bid; $6 ask
5. Now suppose that competition among several market makers forces the spread down to $2. How many goods are traded?
a. Five
b. Four
c. Three
d. Two