BA 210 Quiz 2

Assume that airline travel is a normal good. Higher incomes would ______. a. increase both the price and the quantity of airline travel b. decrease both the price and quantity of airline travel c. increase the price and decrease the quantity of airline travel d. decrease the price and increase the quantity of airline travel

A. Increase both the price and the quantity of airline travel.

An increase in the expected future price of a good by consumers would, other things being equal, ______. a. increase the current price and increase the current quantity exchanged b. increase the current price and decrease the current quantity exchanged c. decrease the current price and increase the current quantity exchanged d. decrease the current price and decrease the current quantity exchanged

A. Increase the current price and increase the current quantity exchanged.

If you observed the price of a good decreasing and the quantity exchanged decreasing, it would be most likely caused by a(n) ______. a. increase in demand b. decrease in demand c. increase in supply d. decrease in supply

B. Decrease in demand

Buyers determine the ______ side of the market; sellers determine the ______ side of the market. a. demand; demand b. demand; supply c. supply; demand d. supply; supply

B. Demand; supply

Along a supply curve, ______. a. supply changes as price changes b. quantity supplied changes as price changes c. supply changes as technology changes d. quantity supplied changes as technology changes

B. Quantity supplied changes as price changes.

Whenever the price of Good A increases, the demand for Good B increases as well. Goods A and B appear to be ______. a. complements b. substitutes c. inferior goods d. normal goods e. inverse goods

B. Substitutes

Suppose CNN announces that bad weather in Central America has greatly reduced the number of cocoa bean plants, and for this reason, the price of chocolate is expected to rise soon. As a result, ______. a. the current market demand for chocolate will decrease b. the current market demand for chocolate will increase c. the current quantity demanded for chocolate will decrease d. no change will occur in the current market for chocolate

B. The current market demand for chocolate will increase.

A supply curve illustrates a(n) ______ relationship between ______ and ______. a. direct; price; supply b. direct; price; quantity demanded c. direct; price; quantity supplied d. introverted; price; quantity demanded e. inverse; price; quantity supplied

C. Direct; price; quantity supplied

Antonio's makes the greatest pizza and delivers it hot to all the dorms around campus. Last week Antonio's supplier of pepperoni informed him of a 25 percent increase in price. Which variable determining the position of the supply curve has changed, and what effect does it have on supply? a. future expectations; supply decreases b. future expectations; supply increases c. input prices; supply decreases d. input prices; supply increases e. technology; supply increases

C. Input prices; supply decreases

An upward-sloping supply curve shows that ______. a. buyers are willing to pay more for particularly scarce products b. sellers expand production as the product price falls c. sellers are willing to increase production of their goods if they receive higher prices for them d. buyers are willing to buy more as the product price falls

C. Sellers are willing to increase production of their goods if they receive higher prices for them.

A leftward shift in supply could be caused by ______. a. an improvement in productive technology b. a decrease in income c. some firms leaving the industry d. a fall in the price of inputs to the industry

C. Some firms leaving the industry.

Which of the following is not a determinant of supply? a. input prices b. technology c. tastes d. expectations e. the prices of related goods

C. Tastes

Which of the following is true? a. The law of demand states that when the price of a good falls (rises), the quantity demanded rises (falls), ceteris paribus. b. An individual demand curve is a graphical representation of the relationship between the price and the quantity demanded. c. The market demand curve shows the quantity of a good that all buyers in the market would be willing and able to buy at various prices. d. All of these are true.

D. All of these are true.

Which of the following are true statements? a. Changes in demand will cause a change in the equilibrium price and/or quantity, ceteris paribus. b. Changes in supply will cause a change in the equilibrium price and/or quantity, ceteris paribus. c. Supply and demand curves can shift simultaneously in response to changes in both supply and demand determinants. d. When simultaneous shifts occur in both supply and demand curves, we will be able to determine one, but not both, of the variables. e. All of these are true.

E. All of these are true

Which of the following is true? a. The intersection of the supply and demand curves shows the equilibrium price and equilibrium quantity in a market. b. A surplus is a situation where quantity supplied exceeds quantity demanded. c. A shortage is a situation where quantity demanded exceeds quantity supplied. d. Shortages and surpluses set in motion actions by many buyers and sellers that will move the market toward the equilibrium price and quantity unless otherwise prevented. e. All of these are true.

E. All of these are true.

Which of the following is a market? a. a garage sale b. a restaurant c. the New York Stock Exchange d. an eBay auction e. all of these

E. All of these.

What would have to be true for both supply and demand to shift in the same time period?

For both supply and demand to shift in the same time period, one or more of both the supply curve shifters and the demand curve shifters would have to change in that same time period.

What happens to the equilibrium price and quantity as a result of a demand increase?

Frustrated buyers unable to buy all they would like at the original equilibrium price will compete to push the market price higher, and that higher price will induce suppliers to increase their quantity supplied. The result is a higher market price and a larger market output.

Assuming that the market is already at equilibrium, what happens to the equilibrium price and quantity as a result of a supply increase?

Frustrated sellers unable to sell all they would like at the original equilibrium price will compete to move the market price lower, and that lower price will induce buyers to increase their quantity demanded. The result is a lower market price and a larger market output.

Why do you get your produce at a supermarket rather than directly from farmers?

Supermarkets act as middlepersons between growers of produce and consumers of produce. You hire them to do this task for you when you buy produce from them, rather than directly from growers, because they conduct those transactions at lower costs than you could. (If you could do it more cheaply than supermarkets, you would buy directly rather than from supermarkets.)

Why do heating oil prices tend to be higher in the winter?

The demand for heating oil is higher in the cold winter months. The result of this higher winter heating oil demand, for a given supply curve, is higher prices for heating oil in the winter.

If plane travel is a normal good and bus travel is an inferior good, what will happen to the demand curves for plane and bus travel if people's incomes increase?

The demand for plane travel and all other normal goods will increase if incomes increase, while the demand for bus travel and all other inferior goods will decrease if incomes increase.

What is the essential question behind issues of economic growth?

The essential question behind issues of economic growth is this: How much are we willing to give up today to get more in the future?

What is the difference between an individual supply curve and a market supply curve?

The market supply curve shows the total quantities of a good all the sellers as a group are willing to sell at various prices in a particular time period. The market quantity supplied at a given price is just the sum of the quantities supplied by each individual seller at that price.

What is the connection between sacrifices and economic growth?

The more current consumption is sacrificed in an economy, the larger the fraction of its current resources it can devote to producing investment goods, which will increase its rate of economic growth.

Why does the amount of dating on campus tend to decline just before and during final exams?

The opportunity cost of dating—in this case, the value to students of the studying time forgone—is higher just before and during final exams than during most of the rest of an academic term. Because the cost is higher, students do less of it.

What must be true about the price charged for a surplus to occur?

The price charged must be greater than the equilibrium price, with the result that sellers would like to sell more at that price than buyers are willing to buy.

What must be true about the price charged for a shortage to occur?

The price charged must be less than the equilibrium price, with the result that buyers would like to buy more at that price than sellers are willing to sell.

What does a production possibilities curve illustrate?

The production possibilities curve illustrates the potential output combinations of two goods in an economy operating at full capacity, given the inputs and technology available to the economy.

What can cause a change in the supply and demand equilibrium?

Changes in any of the demand curve shifters or the supply curve shifters will change the supply and demand equilibrium.

What is the difference between a change in demand and a change in quantity demanded?

A change in demand shifts the entire demand curve, while a change in quantity demanded refers to a movement along a given demand curve, caused by a change in the good's price.

What is the difference between a change in supply and a change in quantity supplied?

A change in supply shifts the entire supply curve, while a change in quantity supplied refers to a movement along a given supply curve.

How do higher prices change buyers' incentives?

A higher price for a good means that the opportunity cost to buyers of purchasing it is higher than before, and self-interest leads buyers to buy less of it as a result.

If both supply and demand decreased, but supply decreased more than demand, the result would be ______. a. a higher price and a lower equilibrium quantity b. a lower price and a lower equilibrium quantity c. no change in the price and a lower equilibrium quantity d. a higher price and a greater equilibrium quantity e. a lower price and a greater equilibrium quantity

A. A higher price and a lower equilibrium quantity

Whenever the price of Good A decreases, the demand for Good B increases. Goods A and B appear to be ______. a. complements b. substitutes c. inferior goods d. normal goods e. inverse goods

A. Complement

If demand for peanut butter increases and supply decreases, what will happen to equilibrium price and quantity?

An increase in the demand for peanut butter increases the equilibrium price and quantity of peanut butter sold. A decrease in the supply of peanut butter increases the equilibrium price and decreases the quantity of peanut butter sold. The result is an increase in peanut butter prices and an indeterminate effect on the quantity of peanut butter sold.

If a guitar manufacturer increased its wages in order to keep its workers, what would happen to the supply of guitars as a result?

An increase in wages, or any other input price, would decrease (shift left) the supply of guitars, making fewer guitars available for sale at any given price, by raising the opportunity cost of producing guitars.

What is an individual demand schedule?

An individual demand schedule reveals the different quantities of a good or service a person would be willing to buy at various possible prices in a particular time interval.

What is an inverse relationship?

An inverse, or negative, relationship is one where one variable changes in the opposite direction from the other—if one increases, the other decreases.

Which of the following would be most likely to increase the demand for jelly? a. an increase in the price of peanut butter, which is often used with jelly b. an increase in income; jelly is a normal good c. a decrease in the price of jelly d. medical research that finds that daily consumption of jelly makes people live 10 years less, on average

B. An increase in income; jelly is a normal good.

If incomes are rising, in the market for an inferior good, ______. a. demand will rise b. demand will fall c. supply will rise d. supply will fall

B. Demand will fall

A point beyond the boundary of an economy's production possibilities curve is ______. a. efficient b. inefficient c. attainable d. unattainable e. both attainable and efficient

D. Unattainable

A ______ production possibilities curve illustrates ______ costs of production. a. straight-line; constant b. straight-line; increasing c. bowed-outward; constant d. bowed-outward; increasing e. Both straight-line; constant and bowed-outward; increasing are true.

E. Both straight-line; constant and bowed-owtward; increasing are true.

Why is it difficult to define a market precisely?

Every market is different. An incredible variety of exchange arrangements arise for different types of products, different degrees of organization, different geographical extents, and so on.

If incomes rise and, as a result, demand for jet skis increases, how do we describe that good?

If income rises and, as a result, demand for jet skis increases, we call jet skis a normal good because for most (or normal) goods, we would rather have more of them than less, so an increase in income would lead to an increase in demand for such goods.

Would a change in the price of ice cream cause a change in the demand for ice cream? Why or why not?

No. The demand for ice cream represents the different quantities of ice cream that would be purchased at different prices. In other words, it represents the relationship between the price of ice cream and the quantity of ice cream demanded. Changing the price of ice cream does not change this relationship, so it does not change demand.

How are opportunity costs shown by the production possibilities curve?

Opportunity cost—the forgone output of one good necessary to increase output of another good—is illustrated by the slope, or trade-off, between the two goods at a given point on the production possibilities curve.

Why are lines so long?

That means there is a surplus, because the quantity demanded is greater than the quantity supplied.

How does the intersection of supply and demand indicate the equilibrium price and quantity in a market?

The intersection of supply and demand indicates the equilibrium price and quantity in a market because at higher prices, sellers would be frustrated by their inability to sell all they would like, leading sellers to compete by lowering the price they charge; at lower prices, buyers would be frustrated by their inability to buy all they would like, leading buyers to compete by increasing the price they offer to pay.

What is the difference between an individual demand curve and a market demand curve?

The market demand curve shows the total quantities of a good or service all the buyers as a group are willing to buy at various possible prices in a particular time interval. The market quantity demanded at a given price is just the sum of the quantities demanded by each individual buyer at that price.

Why are we concerned with widespread numbers of unemployed or underemployed resources in a society?

We are concerned with widespread numbers of unemployed or underemployed resources in a society because if we could reduce the extent of unemployed or underemployed resources, people could have more scarce goods and services available for their use.

When both supply and demand shift, what added information do we need to know in order to determine in which direction the indeterminate variable changes?

When both supply and demand shift, we need to know which of the shifts is of greater magnitude, so that we can know which of the opposing effects on the indeterminate variable is larger; whichever effect is larger will determine the direction of the net effect on the indeterminate variable.

What happens to the supply of babysitting services in an area when many teenagers get their driver's licenses at about the same time?

When teenagers get their driver's licenses, their increased mobility expands their alternatives to babysitting substantially, raising the opportunity cost of babysitting. This change decreases (shifts left) the supply of babysitting services.

How do lower prices change buyers' incentives?

A lower price for a good means that the opportunity cost to buyers of purchasing it is lower than before, and self-interest leads buyers to buy more of it as a result.

Will a country that makes being unemployed illegal be more productive than one that does not? Why or why not?

A more productive economy is one that makes the best use of those who wish to work. Making unemployment illegal (as was true in the old USSR) does not eliminate underemployment, nor does it guarantee that people and other resources are employed where they are most productive (especially because it is more difficult to search for a better job when you are working than when you are not working).

What are the two reasons why a supply curve is positively sloped?

A supply curve is positively sloped because when the price rises, the good becomes more profitable for sellers, so the quantity supplied rises; when the price falls, it becomes less profitable for sellers, and the quantity supplied falls.

The difference between a change in quantity demanded and a change in demand is that a change in ______. a. quantity demanded is caused by a change in a good's own price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations b. demand is caused by a change in a good's own price, while a change in quantity demanded is caused by a change in some other variable, such as income, tastes, or expectations c. quantity demanded is a change in the quantity people actually buy, while a change in demand is a change in the quantity they want to buy d. This is a tricky question. A change in demand and a change in quantity demanded are the same thing.

A. Quantity demanded is caused by a change in a good's own price, while a change in demand is caused by a change in some other variable, such as income, tastes, or expectations.

The difference between a change in quantity supplied and a change in supply is that a change in ______. a. quantity supplied is caused by a change in a good's own price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes b. supply is caused by a change in a good's own price, while a change in quantity supplied is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes c. quantity supplied is a change in the quantity people want to sell, while a change in supply is a change in the quantity they actually sell d. a change in supply and a change in quantity supplied are the same thing

A. Quantity supplied is caused by a change in a good's own price, while a change in supply is caused by a change in some other variable, such as input prices, prices of related goods, expectations, or taxes.

The price of a good will tend to rise when ______. a. a temporary shortage at the current price occurs (assuming no price controls are imposed) b. a temporary surplus at the current price occurs (assuming no price controls are imposed) c. demand decreases d. supply increases

A. a temporary shortage at the current price occurs (assuming no price controls are imposed)

Does an increase in demand create a shortage or surplus at the original price?

An increase in demand increases the quantity demanded at the original equilibrium price, but it does not change the quantity supplied at that price, meaning that it would create a shortage at the original equilibrium price.

Does an increase in supply create a shortage or surplus at the original price?

An increase in supply increases the quantity supplied at the original equilibrium price, but it does not change the quantity demanded at that price, meaning that it would create a surplus at the original equilibrium price.

Which of the following is true? a. The law of supply states that the higher (lower) the price of a good, the greater (smaller) the quantity supplied. b. The relationship between price and quantity supplied is positive because profit opportunities are greater at higher prices and because the higher production costs of increased output mean that suppliers will require higher prices. c. The market supply curve is a graphical representation of the number of goods and services that suppliers are willing and able to supply at various prices. d. All of these are true.

D. All of these are true.

Which statement(s) is/are true about the law of increasing opportunity cost? a. Some resources and skills cannot be easily adapted from their current uses to alternative uses. b. The more you produce of one good, the more you are forced to employ inputs that are relatively more suitable for producing other goods. c. Resources tend to be specialized, so we lose some of their productivity when we transfer those resources from producing what they are relatively good at to producing something at which they are relatively bad. d. All of these are true.

D. All of these are true.

In a competitive market, ______. a. there are a number of buyers and sellers b. no single buyer or seller can appreciably affect the market price c. sellers offer similar products d. all of these

D. All of these.

Which of the following would not cause a change in the demand for cheese? a. an increase in the price of crackers, which are consumed with cheese b. an increase in the income of cheese consumers c. an increase in the population of cheese lovers d. an increase in the price of cheese

D. An increase in the price of cheese.

If you observed the price of a good increasing and the quantity exchanged decreasing, it would be most likely caused by a(n) ______. a. increase in demand b. decrease in demand c. increase in supply d. decrease in supply

D. Decrease in supply

If the demand for milk is downward sloping, then an increase in the price of milk will result in a(n) ______. a. increase in the demand for milk b. decrease in the demand for milk c. increase in the quantity of milk demanded d. decrease in the quantity of milk demanded e. decrease in the supply of milk

D. Decrease in the quantity of milk demanded.

Other things equal, a decrease in consumer income would ______. a. increase the price and increase the quantity of autos exchanged b. increase the price and decrease the quantity of autos exchanged c. decrease the price and increase the quantity of autos exchanged d. decrease the price and decrease the quantity of autos exchanged

D. Decrease the price and decrease the quantity of autos exchanged.

A market will experience a ______ in a situation where quantity supplied exceeds quantity demanded and a ______ in a situation where quantity demanded exceeds quantity supplied. a. shortage; shortage b. surplus; surplus c. shortage; surplus d. surplus; shortage

D. Surplus; shortage

Which of the following is most likely to shift the production possibilities curve outward? a. an increase in unemployment b. a decrease in the stock of physical or human capital c. a decrease in the labor force d. a technological advance

D. a technological advance

All of the following factors will affect the supply of shoes except one. Which will not affect the supply of shoes? a. higher wages for shoe factory workers b. higher prices for leather c. a technological improvement that reduces waste of leather and other raw materials in shoe production d. an increase in consumer income

D. an increase in consumer income.

Which of the following is consistent with the implications of the production possibilities curve? a. If the resources in an economy are being used efficiently, scarcity will not be a problem. b. If the resources in an economy are being used efficiently, more of one good can be produced only if less of another good is produced. c. Producing more of any one good will require larger and larger sacrifices of other goods as more of that good is being produced in an economy. d. An economy will automatically attain the level of output at which all of its resources are fully employed. e. Both if the resources in an economy are being used efficiently, more of one good can be produced only if less of another good is produced and producing more of any one good will require larger and larger sacrifices of other goods as more of that good is being produced in an economy are consistent with the implications of the production possibilities curve.

E. Both if the resources in an economy are being used efficiently, more of one good can be produced only if less of another good is produced and producing more of any one good will require larger and larger sacrifices of other goods as more of that good is being produced in an economy are consistent with the implications of the production possibilities curve.

Which of the following is true? a. The relationship between price and quantity demanded is inverse, or negative. b. The market demand curve is the vertical summation of individual demand curves. c. A change in a good's price causes a movement along its demand curve. d. All of these are true. e. The relationship between price and quantity demanded is inverse, or negative and a change in a good's price causes a movement along its demand curve are true.

E. The relationship between price and quantity demanded is inverse, or negative and a change in a good's price causes a movement along its demand curve are true.

A virulent disease spreads throughout the population of an economy, causing death and disability. This event can be portrayed as ______. a. a movement from a point on the production possibilities curve to a point inside the curve b. a movement from a point on the production possibilities curve to the northeast c. a movement along the production possibilities curve to the southeast d. an outward shift of the production possibilities curve e. an inward shift of the production possibilities curve

E. an inward shift of the production possibilities curve.

How is economic growth shown in terms of the production possibilities curve?

Economic growth—the expansion of what an economy can produce—is shown as an outward shift in the production possibilities curve, with formerly unattainable output combinations now made possible.

What do we mean by efficiency, and how is it related to underemployment of resources?

Efficiency means getting the most we can out of our scarce resources. Underemployment of resources means a society is not getting the most it can out of these resources, either because they are not fully employed or because they are not matched to the uses best suited to them.

How are efficiency and inefficiency illustrated by a production possibilities curve?

Efficient combinations of outputs are illustrated by points on the production possibilities curve, along which more of one good can be produced only if less of some other good is also produced. Inefficient combinations of outputs are illustrated by points inside the production possibilities curve because more of both goods could be produced with the resources available to the economy.

How do expectations about the future influence the demand curve?

Expectations about the future influence the demand curve because buying a good in the future is an alternative to buying it now. Therefore, the higher future prices are expected to be compared to the present, the less attractive future purchases become, and the greater the current demand for that good; people will buy more now when it is expected to be cheaper, rather than later, when it is expected to be more costly.

If both buyers and sellers of grapes expect grape prices to rise in the near future, what will happen to grape prices and sales today?

If grape buyers expect grape prices to rise in the near future, it will increase their current demand to buy grapes, which would tend to increase current prices and increase the current quantity of grapes sold. If grape sellers expect grape prices to rise in the near future, it will decrease their current supply of grapes for sale, which would tend to increase current prices and decrease the current quantity of grapes sold. Because both these effects tend to increase the current price of grapes, grape prices will rise. However, the supply and demand curve shifts tend to change current sales in opposing directions, so without knowing which of these shifts was of a greater magnitude, we do not know what will happen to current grape sales. They could go up, go down, or even stay the same.

If tea prices were above their equilibrium level, what force would tend to push tea prices down? If tea prices were below their equilibrium level, what force would tend to push tea prices up?

If tea prices were above their equilibrium level, sellers would be frustrated by their inability to sell as much tea as they would like at those prices. That is, not all producers could find willing buyers at these high prices. To eliminate the surplus, producers would try to attract more buyers by bringing the price down. As the price falls, the quantity demanded rises and the quantity supplied falls, until the market reaches the equilibrium quantity, where quantity demanded and quantity supplied are equal. If tea prices were below their equilibrium level, buyers would be frustrated by their inability to buy as much tea as they would like at those prices. Buyers who could find the good available would bid up the price, and this would incent producers to raise their prices. As the price rises, the quantity demanded falls and the quantity supplied rises, until the market reaches the equilibrium quantity, where quantity demanded and quantity supplied are equal.

Why do the prices people pay for similar items at garage sales vary more than the prices of similar items in a department store?

Items for sale at department stores are more standardized, easier to compare, and more heavily advertised, which makes consumers more aware of the prices at which they could get a particular good elsewhere, reducing the differences in price that can persist among department stores. Garage sale items are nonstandardized, costly to compare, and not advertised, which means people are often quite unaware of how much a given item could be purchased for elsewhere, so price differences for similar items at different garage sales can be substantial.

Why do market forces tend to eliminate both shortages and surpluses?

Market forces tend to eliminate both shortages and surpluses because of the self-interest of the market participants. A seller is better off successfully selling at a lower equilibrium price than not being able to sell at a higher price (the surplus situation) and a buyer is better off successfully buying at a higher equilibrium price than not being able to buy at a lower price (the shortage situation). Therefore, we expect market forces to eliminate both shortages and surpluses.

If a seller expects the price of a good to rise in the near future, how will that expectation affect the current supply curve?

Selling a good in the future is an alternative to selling it now. Therefore, the higher the expected future price relative to the current price, the more attractive future sales become, and the less attractive current sales become. This will lead sellers to reduce (shift left) the current supply of that good, as they want to sell later, when the good is expected to be more valuable, rather than now.

Would a change in the price of wheat change the supply of wheat? Would it change the supply of corn, if wheat and corn can be grown on the same type of land?

The supply of wheat represents the different quantities of wheat that would be offered for sale at different prices. In other words, it represents the relationship between the price of wheat and the quantity of wheat supplied. Changing the price of wheat does not change this relationship, so it does not change the supply of wheat. However, a change in the price of wheat changes the relative attractiveness of raising wheat instead of corn, which changes the supply of corn.

If the price of zucchini increases, causing the demand for yellow squash to rise, what do we call the relationship between zucchini and yellow squash?

Whenever an increased price of one good increases the demand for another, the goods are substitutes. The fact that some people consider zucchini an alternative to yellow squash explains in part why zucchini becomes more costly. Therefore, some people substitute by buying relatively cheaper yellow squash now instead.

Does the Irish Potato Famine follow the rule of demand?

Yes because not all variables were held constant (Ceteris Paribus). The incomes were lowering during that time as well.

Would a change in the price of ice cream likely cause a change in the demand for frozen yogurt, a substitute?

Yes. Changing the price of ice cream, a substitute for frozen yogurt, would change the quantity of frozen yogurt demanded at a given price. This change in price means that the whole relationship between the price and quantity of frozen yogurt demanded has changed, which means the demand for frozen yogurt has changed.