94 section 2 Supply and Demand
- Which of the following would decrease the effect of a quota on
a market? A(n)
a. decrease in demand
b. increase in supply
c. increase in demand
d. price ceiling above the equilibrium price
e. none of the above
Tackle the Test: Free-Response Questions
- Draw a correctly labeled graph illustrating hypothetical supply
and demand curves for the U.S. automobile market. Label the
equilibrium price and quantity. Suppose the government
institutes a quota to limit automobile production. Draw a
vertical line labeled “Qineffective” to show the level of a quota that
would have no effect on the market. Draw a vertical line labeled
“Qeffective” to show the level of a quota that would have an effect
on the market. Shade in and label the deadweight loss resulting
from the effective quota.
Answer (5 points)
1 point:Correctly labeled supply and demand diagram (vertical axis labeled
“Price” or “P,” horizontal axis labeled “Quantity” or “Q,” upward sloping supply
curve with label, downward sloping demand curve with label)
1 point:Equilibrium at the intersection of supply and demand with the
equilibrium price labeled on the vertical axis and the equilibrium quantity
labeled on the horizontal axis
1 point:Vertical line to the right of equilibrium quantity labeled Qineffective
1 point:Vertical line to the left of equilibrium quantity labeled Qeffective
1 point:The triangle to the right of the effective quota line and to the left of
supply and demand shaded in and labeled as the deadweight loss
Quantity
Price
S
D
E
Qeffective QE Qineffective
PE
Deadweight
loss
- Draw a correctly labeled graph of the market for taxicab rides.
On the graph, draw and label a vertical line showing the level of
an effective quota. Label the demand price, the supply price,
and the quota rent.
Summary
1.The supply and demand modelillustrates how a com-
petitive market,one with many buyers and sellers of
the same product, works.
2.The demand scheduleshows the quantity demanded
at each price and is represented graphically by a de-
mand curve.The law of demandsays that demand
Section 2 Review