Economics Chapter 3 Test

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by

a change in buyer tastes.

Which of the following will not cause the demand for product K to change?

a change in the price of product K

If producers must obtain higher prices than before to produce a given level of output, then the following has occurred.

a decrease in supply

Which of the following would not shift the demand curve for beef?

a reduction in the price of cattle feed

Which of the following will cause the demand curve for product A to shift to the left?

an increase in money income if A is an inferior good

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

an increase in supply

Markets, viewed from the perspective of the supply and demand model,

assume many buyers and many sellers of a standardized product.

Suppose an excise tax is imposed on product X. We expect this tax to

decrease the demand for complementary good Y and increase the demand for substitute product Z.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

decrease, quantity demanded will increase, and quantity supplied will decrease.

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand?

diminishing marginal utility

The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____.

direct; inverse

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to

increase the demand for Z.

If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will

increase the quantity supplied of X and decrease the quantity demanded of X.

Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to

increase the supply of B and increase the demand for C.

Assume the demand curve for product X shifts to the right. This might be caused by

a decline in income if X is an inferior good.

The rationing function of prices refers to the

capacity of a competitive market to equate the quantity demanded and the quantity supplied.

A government subsidy to the producers of a product

increases product supply.

Price floors and ceiling prices both

interfere with the rationing function of prices.

market

is an institution that brings together buyers and sellers.

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

price

The law of demand states that, other things equal,

price and quantity demanded are inversely related.

The supply curve shows the relationship between

price and quantity supplied

Allocative efficiency is concerned with

producing the combination of goods most desired by society.

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded.

Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5 both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to

raise their price and increase their quantity supplied.

Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to

reduce the demand for soda and increase the demand for tacos.

The term "quantity demanded"

refers to the amount of a product that will be purchased at some specific price.

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to

rise, the supply of bread to decrease, and the demand for potatoes to increase.

(Advanced analysis) The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q. The equilibrium price for X is

$6

Refer to the table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be

$9 and 60 units.

If the demand curve for product B shifts to the right as the price of product A declines, then

A and B are complementary goods.

If an economy produces its most wanted goods but uses outdated production methods, it is

Not achieving productive efficiency.

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the

amount of oranges that will be available at various prices has declined.

A leftward shift of a product supply curve might be caused by

an improvement in the relevant technique of production.

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that

bicycles are normal goods.

Black markets are associated with

ceiling prices and the resulting product shortages.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

Data from the registrar's office at Gigantic State University indicate that over the past 20 years tuition and enrollment have both increased. From this information we can conclude that

factors such as school-age population, incomes, and preferences for education have increased over the 20-year period.

A market is in equilibrium

if the amount producers want to sell is equal to the amount consumers want to buy.

Suppose that in each of four successive years, producers sell more of their product and at lower prices. This could be explained

in terms of a stable demand curve and increasing supply.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the

income effect.

Other things equal, an excise tax on a product will

increase its price.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. Consumer expectations that the price of X will rise sharply in the future will

increase D, increase P, and increase Q.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. If X is a normal good, an increase in income will

increase D, increase P, and increase Q.

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n)

increase in the supply of gasoline.

One reason that the quantity demanded of a good increases when its price falls is that the

lower price increases the real incomes of buyers, enabling them to buy more.

If a legal ceiling price is set above the equilibrium price,

neither the equilibrium price nor equilibrium quantity will be affected

An improvement in production technology will

shift the supply curve to the right

If the price of product L increases, the demand curve for close-substitute product J will

shift to the right.

In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are

substitute goods, and the higher price for oil increased the demand for natural gas.

Suppose that in 2007, Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements

suggest that the demand for Mustangs increased between 2007 and 2008.

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the

supply curve for cigarettes leftward.

If price is above the equilibrium level, competition among sellers to reduce the resulting

surplus will increase quantity demanded and decrease quantity supplied.

Graphically, the market demand curve is

the horizontal sum of individual demand curves.

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by

the income effect.

The location of the product supply curve depends on

the location of the demand curve

In moving along a supply curve, which of the following is not held constant?

the price of the product itself.

By an "increase in demand," economists mean that

the quantity demanded at each price in a set of prices is greater.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls?

the substitution effect

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes

the substitution effect.

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect

the supply to increase as farmers plant more corn.

Productive efficiency refers to

the use of the least-cost method of production.

If supply increases and demand decreases, equilibrium price will fall.

true

Which of the following is most likely to be an inferior good?

used clothing

Increasing marginal cost of production explains

why the supply curve is upsloping.