Macroeconomics Chapter Three

Which statement is consistent with the law of supply? An increase in market price will lead to an increase in quantity supplied. An increase in market price will lead to a decrease in quantity supplied. A decrease in market price will lead to an increase in quantity supplied. At a zero price, quantity supplied will be infinite.

An increase in market price will lead to an increase in quantity supplied.

How is the market supply curve derived from the supply curves of individual producers? By adding up the quantities supplied by all individual producers for each price By adding up the prices paid for each unit supplied by producers By calculating the average quantity supplied among all producers By using the largest quantity supplied among all producers for each price

By adding up the quantities supplied by all individual producers for each price

Why does the supply curve slope upward? To answer this question, use the choices below to identify the characteristics of an upward-sloping supply curve. Increasing opportunity costs Increasing marginal costs Diminishing marginal utility A decrease in resource prices An increase in resource prices

Increasing opportunity costs Increasing marginal costs

Next, suppose that the government establishes a price floor of $4.60 for wheat. What will be the main effect of this price floor? It will create a shortage. It will create a surplus. It will establish the equilibrium quantity. It will eliminate the market for wheat.

It will create a surplus.

For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm's shares demanded equals the quantity supplied. Why, then, do the prices of stock shares change? Prices change in reaction to a mismatch between quantity demanded and quantity supplied. Prices are set at a different level each day by Wall Street traders. Prices change due to the whims of those selling stock shares. Actually, the prices of stock shares seldom change.

Prices change in reaction to a mismatch between quantity demanded and quantity supplied.

What are the determinants of supply? Income Prices of other goods Technology Tastes and preferences Resource prices Number of producers

Prices of other goods Technology Resource prices Number of producers

In which of these two statements are the terms "supply" and "demand" used correctly? A. "In the corn market, demand often exceeds supply, and supply sometimes exceeds demand." B. "The price of corn rises and falls in response to changes in supply and demand."

Statement B

What might prompt the government to establish this price ceiling? To encourage production To use it as a form of trade barrier To control food prices To use it as income support for farmers

To control food prices

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact would you expect this event to have on the following? a. The supply of cattle hides b. Hide prices c. The supply of leather goods d. The price of leather goods

a. Decrease b. Increase c. Decrease d. Increase

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market? That is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? a. Supply decreases and demand is constant. b. Demand decreases and supply is constant. c. Supply increases and demand is constant. d. Demand increases and supply increases. e. Demand increases and supply is constant. f. Supply increases and demand decreases. g. Demand increases and supply decreases. h. Demand decreases and supply decreases.

a. Price increases and quantity decreases. b. Price decreases and quantity decreases. c. Price decreases and quantity increases. d. Price is indeterminate and quantity increases e. Price increases and quantity increases. f. Price decreases and quantity is indeterminate. g. Price increases and quantity is indeterminate. h. Price is indeterminate and quantity decreases.

What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires b. A decline in the number of firms in the tire industry c. An increase in the price of rubber used in the production of tires d. The expectation that the equilibrium price of auto tires will be lower in the future than it is now e. A decline in the price of large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires) f. The levying of a per-unit tax on each auto tire sold g. The granting of a 50-cent-per-unit subsidy for each auto tire produced

a. Supply increases b. Supply decreases c. Supply decreases d. Supply increases e. Supply increases f. Supply decreases g. Supply increases

How will an increase in state subsidies to public colleges affect the market for public and private colleges? a. In the market for public colleges: supply will shift to the left. supply will shift to the right. demand will shift to the right. demand will shift to the left. b. In the market for private colleges: demand will shift to the right. supply will shift to the right. demand will shift to the left. supply will shift to the left.

a. supply will shift to the right. b. demand will shift to the left.

What happens to the supply curve when any of the following determinants change? Indicate whether each of these determinants causes a shift of the supply curve or a movement along the curve. i. Change in market price ii. Change in factor productivity iii. Change in producer expectations iv. Change in the price of other goods v. Change in technology vi. Change in resource prices vii. Change in taxes

i. Change in market price: Movement along the supply curve ii. Change in factor productivity: A shift in the supply curve iii. Change in producer expectations: A shift in the supply curve iv. Change in the price of other goods: A shift in the supply curve v. Change in technology: A shift in the supply curve vi. Change in resource prices: A shift in the supply curve vii. Change in taxes: A shift in the supply curve

A price ceiling will result in a shortage only if the ceiling price is ___ the equilibrium price.

less than