Ch3 - Demand and Supply

An increase in demand is represented by a A. rightward shift of a demand curve. B. leftward shift of a demand curve. C. movement upward and to the left along a demand curve. D. movement downward and to the right along a demand curve.

A

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? A.New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. B. The demand curve for beef must be upward sloping. C. Consumers have experienced an increase in income, and beef-production technology has improved. D. The price of chicken (substitute for beef) has risen, and the price of steak sauce has fallen.

A

Stephen is restoring a car and has already spent $4,000 on the restoration. He expects to be able to sell the car for $5,800. Stephen discovers that he needs to do an additional $2,400 of work to make the car worth $5,800 to potential buyers. He could also sell the car now, without completing the additional work, for $3,800. What should he do? A. He should sell the car now for $3,800. B. He should complete the additional work and sell the car for $5,800. C. He should keep the car since it wouldn't be rational to spend $6,400 restoring a car and then sell it for only $5,800. D. It does not matter which action he takes since the outcome will be the same either way.

A

A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect A. the cost of making a good to society, but not its value. B. both the value of a good to society and the cost of making it. C. neither the value of a good to society nor the cost of making it. D. the value of a good to society, but not the cost of making it.

B

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate? A. People face tradeoffs. B. People respond to incentives. C. Rational people think at the margin. D. Trade can make everybody better off.

B

Consider Frank's decision to go to college. If he goes to college, he will spend $21,000 on tuition, $11,000 on room and board, and $1,800 on books. If he does not go to college, he will earn $16,000 working in a store and spend $7,200 on room and board. Given this information, Frank's cost of going to college is A. $23,200 B. $42,600 C. $33,800. D. $22,800

B

Efficiency means that A. society is conserving resources in order to save them for the future. B. society is getting the maximum benefits from its scarce resources. C. society's goods and services are distributed equally among society's members. D. society's goods and services are distributed fairly, though not necessarily equally, among society's members.

B

In a market economy, supply and demand determine A. neither the quantity of each good produced nor the price at which it is sold. B. both the quantity of each good produced and the price at which it is sold. C. the quantity of each good produced but not the price at which it is sold. D. the price at which each good is sold but not the quantity of each good produced.

B

Kari downloads 7 songs per month when the price is $1.29 per song and 10 songs per month when the price is $0.99 per song. Kari's behavior demonstrates the law of A. price B. demand C. income D. supply

B

The "invisible hand" refers to A. the government B. the free market C. large companies D. central planners

B

When quantity demanded increases at every possible price, the demand curve has A. not shifted; rather, the demand curve has become steeper. B. shifted to the right. C. not shifted; rather, we have moved along the demand curve to a new point on the same curve. D. shifted to the left.

B

Which of the following combined events would surely cause a decrease in the equilibrium price of cotton shirts? (Wool shirts and cotton shirts are substitutes). A. an increase in the price of wool shirts and an increase in the price of raw cotton B. a decrease in the price of wool shirts and a decrease in the price of raw cotton C. an increase in the price of wool shirts and a decrease in the price of raw cotton (which is used to make cotton shirts) D. a decrease in the price of wool shirts and an increase in the price of raw cotton

B

Which of the following is not a determinant of the demand for a particular good (i.e. not a factor that can shift the demand)? A. income B. the prices of the inputs used to produce the good C. the prices of related goods D. tastes

B

A rational decision maker takes an action only if the A. the marginal cost of the action is zero. B. marginal benefit is less than the marginal cost. C. marginal benefit is greater than the marginal cost. D. the opportunity cost of the action is more than the marginal benefit

C

A supply curve slopes upward because A. an increase in input prices increases supply. B. the quantity supplied of most goods and services increases over time. C. an increase in price gives producers an incentive to supply a larger quantity. D. as more is produced, total cost of production falls.

C

Lead is an important input in the production of crystal. If the price of lead decreases, then we would expect the supply of A. lead to increase. B. crystal to decrease C. crystal to increase. D. crystal to be unaffected.

C

Melody decides to spend three hours working overtime rather than going to the park with her friends. She earns $20 per hour for overtime work. Her opportunity cost of working is A. nothing, since she would have received less than $60 worth of enjoyment from going to the park. B. the $60 she earns working. C. the enjoyment she would have received had she gone to the park. D. the $60 minus the enjoyment she would have received from going to the park.

C

Other things equal, when the price of a good falls, the A. supply decreases. B. demand increases. C. quantity supplied of the good decreases. D. quantity supplied of the good increases.

C

Suppose that you have received $300 as a birthday gift. You can spend it today or you can put the money in a bank account for a year and earn 5 percent interest. The opportunity cost of spending the money today, in terms of what you could have after one year, is A. $305 B. $0 C. $315 D. $15

C

The adage, "There is no such thing as a free lunch," means A. even people on welfare have to pay for food. B. all costs are included in the price of a product. C. people face tradeoffs. D. the cost of living is always increasing.

C

The overriding reason why households and societies face many decisions is that A. goods and services are not scarce B. people, by nature, tend to be greedy and selfish C. resources are scarce. D. incomes fluctuate with business cycles.

C

When computing the opportunity cost of attending a basketball game you should include A. the price you pay for the ticket, but not the value of your time. B. neither the price of the ticket nor the value of your time. C. the price you pay for the ticket and the value of your time. D. the value of your time, but not the price you pay for the ticket.

C

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates A. the ticket price is at the equilibrium price. B. nothing about the equilibrium price. C. the ticket price is above the equilibrium price. D. the ticket price is below the equilibrium price.

D

Economics is the study of A. how society makes tradeoffs B. how society reserves its resources C. how society makes money using its resources D. how society manages its scarce resources

D

If muffins and bagels are substitutes, a higher price for bagels would result in a(n) A. increase in the demand for bagels. B. decrease in the demand for muffins. C. decrease in the demand for bagels. D. increase in the demand for muffins.

D

In a market economy, supply and demand are important because they A. play a critical role in the allocation of the economy's scarce resources. B. determine how much of each good gets produced. C. can be used to predict the impact on the economy of various events and policies. D. All of the above are correct.

D

Suppose the cost of operating a 100-room hotel for a night is $10,000 (no matter how many rooms are occupied). There are 5 empty rooms for tonight. If the marginal cost of operating one room for one night (i.e. utility and cleaning cost) is $30 and a customer is willing to pay $60 for the night, the hotel manager should A. not rent the room because the marginal benefit is less than the marginal cost. B. not rent the room because $10,000 is higher than $60 C. rent the room because there is no other option. D. rent the room because the marginal benefit exceeds the marginal cost.

D

The opportunity cost of going to college is A. the total spent on food, clothing, books, transportation, tuition, lodging, and other expenses. B. zero for students who are fortunate enough to have all of their college expenses paid by someone else. C. zero, since a college education will allow a student to earn a larger income after graduation. D. the value of the best opportunity a student gives up to attend college.

D