Assignment 2

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the total economic surplus from this transaction was: a) $30 b) $185 c) $195 d) $215

a) $30

What might cause a demand curve to shift to the right? a) An increase in the price of a substitute. b) An increase in the product's own price. c) An increase in the price of a complement. d) A decrease in the price of a substitute.

a) An increase in the price of a substitute.

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true? a) Joe and Mary can make a mutually beneficial exchange. b) Joe and Mary cannot make a mutually beneficial exchange. c) Joe and Mary will not trade in equilibrium. d) Joe and Mary will only trade if the equilibrium price is less than $1.

a) Joe and Mary can make a mutually beneficial exchange.

It is likely that for most people: a) coffee and tea are substitutes. b) coffee and non-dairy creamer are substitutes. c) coffee and Coke are complements. d) coffee and coffee mugs are substitutes.

a) coffee and tea are substitutes.

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case: a) excess demand will lead the price of oranges to rise b) excess supply will lead the price of oranges to fall c) excess demand will lead the price of oranges to fall d) excess supply will lead the price of oranges to rise

a) excess demand will lead the price of oranges to rise

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect: a) the equilibrium price and quantity of pencils to fall b) the equilibrium price and quantity of pencils to rise c) the equilibrium price of pencils to fall and the equilibrium quantity of pencils to rise d) the equilibrium price of pencils to rise and the equilibrium quantity of pencils to fall

a) the equilibrium price and quantity of pencils to fall

The price of bananas will increase in response to: a) an excess supply of bananas. b) an excess demand for bananas. c) an increase quantity of bananas supplied. d) an increase in the supply of bananas.

b) an excess demand for bananas.

Shelly purchases a leather purse for $400. One can infer that: a) she paid too much. b) her reservation price was at least $400. c) her reservation price was exactly $400. d) her reservation price was less than $400.

b) her reservation price was at least $400.

If the demand for a good decreases as income decreases, then the good is a(n): a) complementary good. b) normal good. c) inferior good. d) substitute good.

b) normal good.

Refer to the figure below. If the government imposed a price ceiling of $40, what would happen in this market? a) There would be excess supply. b) There would be excess demand. c) The price ceiling would have no effect. d) The equilibrium quantity would fall.

c) The price ceiling would have no effect.

Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result? a) They would all make a large profit because $45 is more than the equilibrium price. b) They would all just break even because $45 is their reservation price. c) They would lower their prices because at $45 there would be excess supply. d) They would lower their prices because at $45 there would be excess demand.

c) They would lower their prices because at $45 there would be excess supply.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is: a) at least $5.00. b) $4.50. c) greater than $4.50 but no more than $5.00. d) $5.00.

c) greater than $4.50 but no more than $5.00. d) $5.00.

Refer to the figure below. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will: a) shift to S(B). b) not change because a change in the price of plastic will not affect the demand for action figures. c) shift to S(A). d) not change; only the quantity supplied will change.

c) shift to S(A).

The entire group of buyers and sellers of a particular good or service makes up: a) the demand curve. b) the supply curve. c) the market. d) the equilibrium price and quantity.

c) the market.

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______. a) $30; 15 b) $25; 20 c) $25; 5 d) $35; 20

d) $35; 20

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by: a) a decrease in the cost of growing corn. b) an increase in the cost of growing corn. c) a rise in consumer income assuming corn is a normal good. d) a fall in consumer income assuming corn is a normal good.

d) a fall in consumer income assuming corn is a normal good.

Refer to the figure below. At a price of $9, there will be: a) an excess demand of 5 units. b) an excess supply of 6 units. c) an excess demand of 1 unit. d) an excess supply of 5 units.

d) an excess supply of 5 units.

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium: a) excess demand will lead the price to rise. b) excess supply will lead the price to rise. c) excess demand will lead the price to fall. d) excess supply will lead the price to fall.

d) excess supply will lead the price to fall.

If the local slaughterhouse gives off an unpleasant stench, then the equilibrium quantity of meat will be _____ the quantity that maximizes total economic surplus. a) more equitable b) equal to c) lower than d) higher than

d) higher than

When a market is in equilibrium: a) there is either excess demand or excess supply. b) both excess demand and excess supply are positive. c) both excess demand and excess supply are positive and equal to each other. d) there is neither excess demand nor excess supply.

d) there is neither excess demand nor excess supply.