Econ Exam #1

Which of the following is the most likely to be bought and sold in a perfectly competitive market?

24-karat gold

A fall in the price of flour, used in making cakes, is likely to ________ of cakes.

increase the supply

All else being equal, an increase in the price of Nike Air Jordan XXXI Fly Low shoes will cause an ________.

increase in quantity supplied

Other things remaining the same, a leftward shift in the supply curve will lead to a(n) ________.

increase in the equilibrium price and a decrease in the equilibrium quantity

Other things remaining same, a rightward shift in the demand curve will lead to a(n) ________.

increase in the equilibrium price and the equilibrium quantity

The demand curve for most goods is normally ________.

downward sloping

Which of the following pairs of goods is likely to be considered substitutes?

A Ford car and public transportation

Differentiate between a change in demand and a change in quantity demanded.

A change in demand happens when people want more or less of something for reasons other than price, shifting the whole demand curve. A change in quantity demanded occurs when the price of the item changes, affecting how much people want to buy at that price. In this case, the overall demand stays the same, but the amount changes.

Which of the following factors will NOT cause a shift in the demand for a good?

A change in the market price of the good

Which of the following is not an example of a market?

A city requires homeowners to pay $500 for putting in a sidewalk on their street

An increase in the price of aviation fuel will cause which of the following for the supply of flights from New York to Los Angeles?

A decrease in supply

Which of the following is likely to cause the supply curve for steel window frames to shift to the right?

A decrease in the cost of production of steel due to a new subsidy

Which of the following best describes the difference between a demand curve and a demand schedule?

A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

A fall in the price of pens

Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

A higher tax on the sale of tea, a substitute for coffee

Which of the following is likely to lead to an increase in the quantity supplied of steel?

A rise in the market price of steel

Which of the following is likely to cause the demand curve for cars to shift to the left?

A rise in the price of gasoline

Which of the following statements correctly describes a perfectly competitive market?

All participants in a perfectly competitive market are price-takers.

Which of the following is likely to lead to a rightward shift in the supply curve of cotton?

An increase in labor productivity due to training programs

Which of the following is likely to shift the market demand curve for school textbooks to the right?

An increase in the enrollment rates in high schools

What will happen to the equilibrium price and quantity of cars if there is an increase in the price of gasoline?

An increase in the price of gasoline will cause the demand for cars to shift left, supply remaining unchanged. With supply unchanged and a leftward shift in the demand for cars, both the equilibrium price and quantity of cars will decrease.

Which of the following statements correctly describes perfectly competitive market equilibrium?

Competitive markets converge to the price at which quantity supplied and quantity demanded are equal.

Why do economists study perfectly competitive markets even though few, if any, markets in the real world are perfectly competitive?

Because the perfectly competitive market is a good approximation to many markets in the real world and helps us understand how real markets work

Las Vegas, Nevada, is a popular vacation destination for residents of Hawaii. If the Hawaiian economy experiences strong economic growth and, as a result, household incomes increase on average by 10 percent, what will likely happen to the demand for airplane tickets from Hawaii to Las Vegas?

Demand will increase.

The automobile market in the United States is often said to be highly competitive. But it is not perfectly competitive. What makes this market not perfectly competitive?

Different car companies make different vehicles with different features.

The gasoline market in the United States is often said to be highly competitive. But it is not perfectly competitive. What makes this market not perfectly competitive?

Different companies put different additives (designed to reduce engine deposits) in the gas they sell.

Which of the following is a feature of a perfectly competitive market?

Each seller is too small to influence the market price.

Should an economist consider a Web-based job search portal like Monster.com as a market?

Economists define a market as a group of economic agents who are trading a good or service, and the rules and arrangements for trading. It need not have a specific physical location. Monster.com is a Web-based job market that operates wherever there's a computer and an Internet connection.

If the demand for gem-quality diamonds decreases AND the supply of gem-quality diamonds decreases, what can be said about equilibrium price and quantity in this market?

Equilibrium quantity will fall, but the change in equilibrium price is uncertain.

Which of the following was an effect of the price ceiling placed on gasoline in the United States in the 1970s?

Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

Which of the following is not a required characteristic of a market?

Government setting the price of the good or service

Which of the following statements is TRUE of the concept of willingness to pay?

If a consumer is consuming 10 units of a commodity and she is ready to pay $2 for the eleventh unit, her willingness to pay for the eleventh unit is $2.

What are the key features of a perfectly competitive market?

In a perfectly competitive market, (i) all sellers sell an identical good or service, and (ii) any individual buyer or any individual seller is not powerful enough to affect the market price of that good or service.

The development of genetically modified soybean seeds such as Roundup Ready seeds lowered tillage costs for soybean growers. How will this technological advance affect the supply of soybeans?

Increase in supply

How does the study reported in the Evidence-Based Economics element in this chapter demonstrate the law of demand?

It uses different tax and subsidy policies across Latin American countries as a natural experiment.

Explain the role of prices in a market

Markets use prices to allocate goods and services. Prices act as a selection device that encourages trade between the sellers who can produce goods at low cost and the buyers who place a high value on the goods.

Which of the following is TRUE of a market?

Price acts as a selection device for buyers and sellers in every market.

If there is excess demand in a perfectly competitive market, does the government need to intervene to restore the equilibrium price and quantity? Why or why not?

No. In a perfectly competitive market, no government intervention is required to restore equilibrium, as equilibrium is automatically restored. A situation of excess demand occurs when the market price is below the equilibrium price. Because quantity demanded exceeds quantity supplied in the market, some consumers will be willing to pay higher prices to buy goods. This will act as an incentive for suppliers to supply more, eliminating the shortage in the market.

Which of the following pairs of goods is likely to be considered complements?

Pens and writing pads

Suppose there has been an increase in the equilibrium price and quantity in the market for chickens. Which of the following events could have caused this?

People quarantining at home have decided they want to try raising backyard chickens.

Suppose the market for cement is such that the output of all sellers is identical in composition and quality. While there are a large number of buyers and sellers, everyone conducts transactions at a common market price. Which of the following statements is TRUE about the structure of the cement market?

The cement market is perfectly competitive.

People frequently eat chips and guacamole together. Suppose the price of chips increases and there is a shortage of avocados, which are used to produce guacamole. How will these affect the equilibrium price and quantity of guacamole?

The change in price is ambiguous, quantity will decrease.

Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example?

The concept of diminishing marginal benefit

Assume that people like to eat cookies while drinking milk. If the price of milk falls, what would happen to demand for cookies?

The demand curve would shift right.

Refer to the table above. Which producer exhibits the greatest increase in quantity supplied for a $1.00 per bushel increase in the price of soybeans?

The large Iowa farm

Which of the following statements correctly describes a competitive market?

The market price is determined by the interaction of demand and supply.

Which of the following would cause a decrease in price and quantity in the market for paperback textbooks?

The price of e-textbooks decreases.

Which statement is consistent with the study reported in the Evidence-Based Economics element in this chapter?

The very low gasoline price due to large subsidies explains why more gasoline is consumed in Venezuela than in other countries.

Which of the following is the best example of the Law of Supply?

When the market price of pens increased, sellers started supplying more pens.

Which of the following examples best describes the Law of Demand?

When the price of bread doubles, John's consumption of bread halves.

Which of the following examples best describes the concept of diminishing marginal benefit?

With each additional pen Jill buys, her willingness to pay for another pen decreases.

Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

a higher price and the same quantity

If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

a higher quantity and the same price

Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

a lower price and quantity

An increase in the demand for a good is represented by ________.

a rightward shift of a demand curve

The gasoline market in the United States is often said to be highly competitive. It is not perfectly competitive, but it has features and results that are similar to those of a perfectly competitive market, such as ________.

a) an individual buyer cannot influence the market price of gasoline by himself B) gas stations located near each other tend to charge the same or very similar prices C) an individual gas station cannot influence the market price by itself

Which of the following does NOT have a market in the real world?

a)First-class mail delivery in the United States, where the U.S. Postal Service is the only legal carrier of such mail B) Kidneys for transplant, for which you cannot legally receive or pay money C) Illegal narcotic substances D) None of the above

In a perfectly competitive market, ________.

all sellers sell an identical good or a service

In a perfectly competitive market, the market clearing price is ________ the equilibrium price. A) always equal to

always equal to

Refer to the table above. The Iowa soybean producer with the lowest willingness to accept is the ________

both the average and large farms

A price ceiling imposed by the government ________.

can create situations of excess demand

The acai berry and products made from it are a popular dietary supplement, believed to reverse diabetes and lead to weight loss. Suppose that a peer-reviewed medical study reveals that there are no health benefits from consuming acai berry products. The likely effect of this medical study will be to ________.

cause a decrease in demand

Suppose Apple raises the cost of downloading a song from iTunes from $0.99 per song to $1.49 per song. This price increase will cause a(n) ________.

decrease in quantity demanded

Other things remaining the same, a rightward shift in the supply curve will lead to a(n) ________.

decrease in the equilibrium price and an increase in the equilibrium quantity

Other things remaining same, a leftward shift in the demand curve will lead to a(n) ________.

decrease in the equilibrium price and the equilibrium quantity

The willingness to pay for a commodity ________.

decreases as consumption of the commodity increases

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

demand curve

Why is the competitive equilibrium price often referred to as the market clearing price?

determined at the point of intersection of the market demand and the market supply curves. At the point of intersection, the quantity demanded is equal to the quantity supplied in the market, which implies that there is no excess supply or excess demand in the market. Because quantity demanded equals quantity supplied and markets clear at the competitive equilibrium price, the price is also referred to as the market clearing price.

A supply schedule is a table that reports the ________.

different quantities of a good that producers are willing to sell at different prices

The buyers of a good will want to purchase it as long as their willingness to pay for the good is _______

greater than or equal to the price

During the Battle of the Bulge in December 1944, American soldiers near Bastogne, Belgium, offered as much as $73 for a can of Campbell's soup that sold for $0.13 in U.S. grocery stores ($73 was nearly an entire month's pay for an army sergeant at that time). These large amounts of money offered for soup represent a(n) ________.

high willingness to pay

Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, and the shift in demand is greater than the shift in supply. Then in comparison to the initial equilibrium, the new equilibrium will be characterized by a ________.

higher price and quantity

Define marginal cost. Is it different from the concept of willingness to accept?

in production refers to the extra cost incurred in producing an additional unit of a commodity. Willingness to accept is the lowest price that a firm is willing to receive to sell an additional unit. In a competitive market, marginal cost is the same as a seller's willingness to accept. This is because the lowest price that any seller is willing to accept for an additional unit will equal the marginal cost of production of that unit. If she asks for a higher price, she will lose almost all of her buyers, and if she asks for a lower price, her cost of producing an additional unit will exceed the revenue she makes from selling it.

he equilibrium quantity in a perfectly competitive market is determined at the point of ________.

intersection of the demand and supply curves

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in ________.

its price

Two goods are said to be substitutes when a fall in the price of one good ________.

leads to a leftward shift in the demand for the other good

Two goods are said to be complements when a fall in the price of one good ________.

leads to a rightward shift in the demand for the other good

Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n) ________.

leftward shift in the market demand for all goods

Assume that a seller in a perfectly competitive market charges more than the equilibrium price. It is likely that this seller will ________.

lose almost all of his buyers

A seller's willingness to accept is the same as his ________ cost of production.

marginal

A(n) ________ is a group of buyers and sellers who are trading goods and/or services.

market

If all sellers and all buyers face the same price during an exchange, it is referred to as the ________.

market price

A shortage occurs in a market when ________.

price is lower than the equilibrium price

At the competitive equilibrium, the ________.

quantity demanded is equal to the quantity supplied of a good

A change in the quantity demanded of a good is ________.

represented by a movement along a demand curve

In a perfectly competitive market, situations of surplus or shortage of a good ________.

self-correct due to the competitive nature of the market

An expected increase in the market price of oil in the coming year is likely to ________ in the current year.

shift the supply curve of oil to the left

Assume that a worker in a technology firm can produce 3 circuit boards in an hour. Due to subsequent innovation, she is now able to produce 6 circuit boards per hour. Other things remaining the same, the firm's supply curve is likely to ________.

shift to the right

The market supply is the ________ of the individual supplies of all the potential sellers.

sum

he market demand is the ________ of the individual demand of all the potential buyers.

sum

The ________ plots the relationship between prices and the quantity producers are willing to sell.

supply curve

In competitive markets, firms ________.

take the market price as given

The quantity demanded of a good is ________.

the amount of the good that buyers are willing to purchase at a given market price

The quantity supplied of a good is ________.

the amount of the good that sellers are ready to supply at a given price

Willingness to accept is ________.

the lowest price that a producer is willing to receive to sell an extra unit of a good

Which of the following examples best approximates a competitive market?

the market for soybeans in the united states

A seller who is a price-taker charges ________.

the market price

A surplus occurs in a market when ________.

the price is higher than the equilibrium price

The Law of Demand states that ________.

the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant

The Law of Supply states that ________.

the quantity supplied of a good rises when the price rises, all other things remaining constant

If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by ________.

the same price and a lower quantity

The concept of diminishing marginal benefit states that ________.

the willingness to pay for an additional unit declines as more of a good is consumed