Principles of Macroeconomics Chapter 3

The term "ceteris paribus" means that: A. Everything is variable. B. All variables except those specified are constant. C. No one knows which variables will change and which will remain constant. D. What is true for the individual is not necessarily true for the whole.

All variables except those specified are constant.

Resource X is necessary to the production of good Y. If the price of resource X falls, the equilibrium price of Y will ______________ and the equilibrium quantity of Y will A. rise; rise. B. fall; fall. C. fall; rise. D. rise; fall.

fall; rise.

If the demand for a good increases by more than the supply of the good increases, then equilibrium price will __________ and equilibrium quantity will __________. A. rise; fall B.rise; rise C. fall; fall D. fall; rise

rise; rise

When P = $5, the quantity demanded of a good is 30 units, and the quantity supplied of the good is 50 units. For every $1 decrease in the price of this good, quantity demanded rises by 5 units and quantity supplied falls by 5 units. The equilibrium price of this good is ___________and the equilibrium quantity of this good is _________ units. A. $3; 40 B. $4; 35 C. $2; 45 D. $2; 35 E. $3; 35

$3; 40

Refer to Exhibit 3-10. At a price of $10 __________ units of the good will be exchanged. A. 100 B. 200 C. 300 D. None of the above

100

Refer to Exhibit 4-9. Suppose that the government imposes a price ceiling at a price of $11. How many fewer units would be exchanged with the price ceiling than in a free market? A. 50 B. 30 C. 40 D. 70

30

The following image represents the supply and demand model. In this exercise, you will display your understanding of the model by identifying what each of the letters (A, B, C, D, E, F, G, H, I) represents according to the definitions and labeling conventions used by economists and presented in the course

A-VI. Price B-III. The demand curve C-IX. Excess supply/surplus D-IV. the supply curve E-II. Equilibrium F-V. Excess demand/shortage G-I. Quantity H-VII. Equilibrium Quantity I-VIII. Equilibrium price

Refer to Exhibit 4-8. If the wheat market is in competitive equilibrium, the consumers' surplus will equal A. Area 1 + 2 + 3 B. Area 1 + 2 + 4 C. Area 3 + 5 D. Area 1 + 2 + 3 + 4 + 5 E. Area 6

Area 1 + 2 + 4

The demand curve A. Is upward sloping B. Is downward sloping C. Represents the inverse relationship between price and quantity demanded D. B and C

B and C

Smartphones and Apps can be considered ___________________. Therefore, as the prices of Apps ___________________ , the demand for smartphones ___________________ A. Complements in consumption; rises; rises B. Substitutes in consumption ; declines; rises C. Complements in consumption ; rise; decline D. Substitutes in consumption ; rise or decline; unchanged

Complements in consumption ; rise; decline

An article authored by Eric Ye and Terry Higgins (April 2014) claims "Domestic gasoline consumption has declined from its peak in 2007 and due to CAFÉ standards is projected to decline. Expanded use of biofuel will further reduce demand for refinery-produced gasoline. However, this new increasing supply of opportunistic crudes and associated natural gas liquids (NGLs) favours increased gasoline production." If true, the impact of this on Equilibrium quantity and equilibrium price would be A. Both equilibrium price and equilibrium quantity decline B. Equilibrium price declines and equilibrium quantity rises C. Equilibrium price declines and the effect on equilibrium quantity cannot be determined without additional information D. Equilibrium quantity decliness and the effect on equilibrium price cannot be determined without additional information

Equilibrium price declines and the effect on equilibrium quantity cannot be determined without additional information

In economics, we can use the terms "demand" and "quantity demanded" interchangeably. True False

False

In economics, we can use the terms "supply" and "quantity supplied" interchangeably. True False

False

In trying to make a profit maximizing decision, managers are concerned about both supply and demand. Which of the following factors affect demand specifically? (select all that apply) A. Income B. Cost of Production C. Consumers' tastes D. Price of related goods

Income Consumers' tastes Price of related goods

Refer to Figure 3-3. A change from Point A to Point D represents a(n): A. Decrease in quantity supplied. B. Increase in quantity supplied. C. Decrease in supply. D. Increase in supply.

Increase in supply.

The demand schedule for a good: A. Indicates the quantity that people will buy at the prevailing price. B. Indicates the quantities that suppliers will sell at various market prices. C. Is determined primarily by the cost of producing the good. D. Indicates the quantities that will be purchased at alternative market prices.

Indicates the quantities that will be purchased at alternative market prices.

A market is not in equilibrium if A. It exhibits either a surplus or a shortage. B. the number of units that individuals are willing to buy exceeds the number of units they can afford. C. It is a market for an inferior good. D. None of the above

It exhibits either a surplus or a shortage.

The demand curve for a typical good has a(n): A. Negative slope because some consumers switch to other goods as the price rises. B. Negative slope because consumer incomes fall as the price of the good rises. C. Negative slope because the good has less "snob appeal" as its price falls. D. Inverse slope because as the price goes up, the good has more profitability.

Negative slope because some consumers switch to other goods as the price rises.

The debate on the effects of raising the minimum wage is ongoing. A few years ago, Seattle, Los Angeles, and San Francisco passed laws to gradually raise the minimum wage to $15/hour. Beaudry, Paul, David A. Green, and Ben M. Sand (investigated the possible effects of these laws on the labor market and concluded that "...for workers below $10 per hour in Seattle, the employment rate declines by over 10 percent in response to raising the minimum wage to $15. Meanwhile, for the larger group with wages at or below $15, the decline is approximately 7 percent." The authors' conclusion is consistent with the specific economic theory discussed in the course that A. Price floor set below market equilibrium price leads to excess demand (shortage) B. Price floor has no effect regardless of where it is set relative to market equilibrium C. Price floor set above equilibrium price leads to excess supply (surplus) D. A and C

Price floor set above equilibrium price leads to excess supply (surplus)

_________________ refers to the total number of units that are purchased at that price. A. Quantity B. Quantity demanded C. Supply D. Market quantity

Quantity demanded

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the resulting changes in price and quantity? A. The price will increase, but the quantity may increase or decrease. B. The price will increase, and the quantity will increase. C. The price will decrease, and the quantity will increase. D. The price will stay the same, but the quantity will increase. E. The price will stay the same, but the quantity will decrease.

The price will stay the same, but the quantity will decrease.

If the workers of a firm successfully negotiate an increase in wages, which of the following is most; likely to happen? A. The supply curve of the product the firm produces shifts rightward B. The demand curve for the product the firm produces shifts leftward C. The supply curve of the product the firm produces shifts leftward D. The demand curve for the product the firm produces shifts rightward

The supply curve of the product the firm produces shifts leftward

Refer to the exhibit below. Currently the market is in equilibrium at a price level of $2 per pound and a quantity of 10 million tons of coffee (the intersection of D1 and S1. Assuming this is a normal good, if income of households rises, which of the 4 shifts indicated by the arrows do you expect? A B C D

Wrong Answer: D

In a report published on The Brookings Institution's website Rebecca Diamond (2018) finds "Rent control appears to help affordability in the short run for current tenants, but in the long-run decreases affordability, fuels gentrification, and creates negative externalities on the surrounding neighborhood." This finding is consistent with the specific economic theory discussed in the course that A. price ceiling set below the equilibrium price leads to shortage B. price ceiling set above the equilibrium price leads to surplus C. price ceiling has a negative effect regardless of where it is set relative to the equilibrium price D. All of the above

Wrong Answer: Price ceiling set above the equilibrium price leads to surplus

If demand increases by a lesser amount than supply increases, then equilibrium price __________ and equilibrium quantity __________. A. rises; falls B. falls; falls C. rises; rises D. falls; rises

Wrong Answer: rises;rises