Market equilibrium: Practice Questions

In the market for Good Y, there is currently an excess supply (surplus). This implies that:

Suppose the market demand for a certain life-saving drug is perfectly price inelastic. The market is initially in equilibrium with an upward-sloping supply curve. If the government imposes a per-unit tax on the producers of the drug, which of the following statements are correct?

I. The equilibrium price will increase by the exact amount of the per-unit tax.
II. The equilibrium quantity will decrease.
III. The total expenditure of consumers on the drug will increase.
IV. The producer surplus will remain unchanged.

In a competitive market, if the current market price is above the equilibrium price, there will be a __________, and the price will tend to _________.

Suppose a market for a private good consists of only two consumers, A and B, whose individual demand curves are \(Q_A = 40 - P\) and \(Q_B = 60 - 2P\) respectively. The market supply curve is \(Q_S = 2P - 10\). What is the market equilibrium price and the corresponding quantity consumed by consumer B?

In a competitive market for Good X, two events occur simultaneously:
(i) The government provides a per-unit subsidy to the producers of Good X.
(ii) The price of a major complement of Good X increases.

Which of the following statements about the new market equilibrium of Good X must be correct?
I. The equilibrium price of Good X decreases.
II. The equilibrium quantity of Good X increases.
III. The consumer surplus of Good X increases.
IV. The total expenditure of consumers on Good X increases.

Define market equilibrium and explain why there is no tendency for the market price to change when this state is reached.

Assume the market for smartphones is in equilibrium. Explain the effect on the equilibrium price if there is a simultaneous increase in the number of buyers and a significant improvement in production technology, and indicate whether the effect on the price is certain.

The demand for a product decreases due to changing consumer tastes, while its supply increases because of a reduction in import tariffs. Explain why the equilibrium price will definitely fall, but the effect on the equilibrium quantity is uncertain.

Consider the market for electric private cars. Suppose the following two events occur simultaneously:

(1) The government increases the registration tax for gasoline-powered cars, which are substitutes for electric cars.
(2) Advancements in automated production technology significantly reduce the cost of manufacturing electric cars.

(a) With the aid of a supply-demand diagram, explain the impact of these two events on the equilibrium price (\(P\)) and equilibrium quantity (\(Q\)) of electric private cars.
(b) Explain whether it is possible for the equilibrium price to remain unchanged after these two events.

Consider the market for electric vehicles in a country, which is initially in a state of equilibrium. Suppose the following two events occur simultaneously:

(1) The government introduces a significant new subsidy for consumers who purchase electric vehicles, aimed at reducing carbon emissions.
(2) A global shortage of lithium, a critical component for electric vehicle batteries, leads to a substantial increase in the production cost of these vehicles.

(a) With the aid of a demand and supply diagram, explain how the above events affect the equilibrium price and equilibrium quantity of electric vehicles. (6 points)

(b) Is it possible to determine the direction of change for both the equilibrium price and the equilibrium quantity in this scenario? Explain your answer. (2 points)