Principles of Macroeconomics: Chapter 3 Study Guide

The situation described in the book as "Smart for One, Dumb for All" occurs when

individuals, when acting rationally, fail to take advantage of all opportunities for social benefit

If price is above the equilibrium value, then

producers find their inventories growing and will start to cut price

If both supply and demand increase simultaneously, the new equilibrium price is ___ and the new equilibrium quantity is ___

indeterminate; higher

If both supply and demand decrease simultaneously, the new equilibrium price is ___ and the new equilibrium quantity is ___

indeterminate; lower

Which of the following is NOT a characteristic of a market in equilibrium?

All consumers are able to purchase as much as they wish

Which of the following directly follows from the No Cash on the Table Principle?

For a transaction to occur, the buyer's reservation price must be greater than the seller's reservation price.

Which of the following is NOT true of a demand curve?

It shows how an increase in price leads to an increase in quantity demanded of a good.

A decrease in the demand for bananas with no concurrent change in the supply of bananas will result in a ___ equilibrium price and a(n) ___ equilibrium quantity

Lower; lower

A good example of central planning at work in the USA would be

New York City's rent control

Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?

No single person's reservation price to clean the park makes it worth cleaning it

Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur?

The equilibrium price of sugar will fall

Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers were selling tickets int eh same seating area as your for $25. What is probably true?

There is an excess supply of tickets for this concert at the Ticketmaster price.

In a market where government has set the price below the equilibrium price, one might expect

a black market to develop as individuals try to take advantage of unexploited opportunities.

A movement along a demand curve from one price-quantity combination to another is called

a change in quantity demanded

Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is

a decrease in demand for ketchup with no change in supply

One observes that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?

a decrease in demand with supply constant

Suppose that the equilibrium price of pickles falls while the equilibrium quantity falls. The most consistent explanation for these observations is

a decrease in the supply of French fries with no change in demand

Minimum wage laws are an example of

a regulated price

The No Cash on the Table Principle asserts that

an equilibrium, all opportunities have been exploited

What might cause a supply function to shift to the left today?

an expectation that the product's price will rise in the future

When a market is not in equilibrium

the economic motives of sellers and buyers will move the market to its equilibrium

The technology used to manufacture Personal Computers (PCs) has improved. The likely result would be

an increase in supply of PCs

What might cause a demand function to shift to the right?

an increase in the price of a substitute

An increase in the demand for GM automobiles results in

an increase in the quantity supplied of GM automobiles

One observes that the equilibrium price of a DVD player increases and the equilibrium quantity increases

and increase in demand with supply constant

Efficiency is an important goal in economics because it

assures a higher level of output

A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because

at any price other than equilibrium, forces in the market move price towards the equilibrium.

When two people agree to a price in negotiation, we can assume that

both parties will benefit

The equilibrium price and quality of any good or service is established by

both suppliers and demanders

At the beginning of the fall semester, college towns experience large increases in their population, causing a(n)

increase in the demand for apartments

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas

causes the price you pay for gas to increase

In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories. Therefore, Cuba is an example of a

centralized economy

IN the market for office workers

computers and desks are complements

If the price of computers increases and the demand for monitors decreases, then

computers and monitors are complements

When the price of a good is below its equilibrium value

consumers will bid the price up

As the price of flour (an input into the cookie production process) increases, firms that produce cookies will

decrease the supply of cookies

When supply of a good decreases, consumers respond by

decreasing their quantity demanded

One observes that the equilibrium pried of apples falls and the equilibrium quantity increase. Which of the following best fits the observed data?

demand constant and an increase in supply

Suppose one could rent car or take the train to got to Chicago from Kalamazoo. If the price of train ticket increase

demand for rental cars will increase

In a free market, if the price of a good is below the equilibrium price, then

demanders, to acquire the good, will bid the price higher.

A demand curve is ___ sloping because ___

downward; fewer people are willing to buy the item at a higher price.

A market in disequilibrium would feature

either excess supply or excess demand

In general, when the demand curve shifts tot the right and supply remains constant then

equilibrium quantity will rise

"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because

falling prices for personal computers increases quantity demanded, not demand.

As the price of cookies increases, firms that produce cookies will

increase the quantity supplied of cookies

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, government sets the price for prescription drugs. One can conclude that the

government has set the price below the equilibrium price

Shelly purchases a leather purse for $400. One can infer that

her reservation price was at least $400

If supply decreases while demand increases simultaneously, the new equilibrium price is ___ and the the new equilibrium quantity is ___

higher; indeterminate

You can spend $5 for lunch and you would like to have two Double Cheeseburgers. When you get to the restaurant, you find out the price for Double Cheeseburgers has increased from $2.50 to $2.99. You decide to have two single cheeseburgers for lunch. This is best described as a(n)

income effect

If pizzas are a normal good, then decrease int eh price of pizza will cause a(n)

increase in quantity demanded

As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are a(n)

inferior good

As consumers' incomes increase, the demand for ground beef decreases. Ground beef if called a(n)

inferior good

Which of the following is not true of an equilibrium price?

it is always a fair and just price

According to the text, government price controls fail because

legislation can not repeal basic economic motives.

When the equilibrium quantity maximizes total economic surplus, it follows that

marginal cost = marginal benefit

According to the equilibrium principle

market equilibrium exploits all opportunities for individuals for individual gain, but may not exploit gains possible through collective action.

Buyers and sellers of a particular good comprise the

market of a good

An outcome is socially optimal if it

maximizes total economic surplus

The buyer's reservation price of a particular good or service is the

maximum amount one would be willing to pay for it

Sellers tend to offer ___ for sale as price increases, and so the supply curve is ___ sloping.

more; upward

If the demand for steak increases as income increases, this means that steak is a(n)

normal good

If the demand or a good decreases as income decreases, it is a(n)

normal good

If the demand for Personal Computers (PC) shifts to the right (up) as consumers' incomes rise, PC's are

normal goods

Suppose one observes that when the price of peanut butter increase, the demand for jelly increase. One must conclude that

peanut butter and jelly are substitutes

If market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is ___ and the change in the equilibrium quantity will

positive; indeterminate

In order to understand how the price of a good is determined int eh free market, one must account for the desires of

purchasers and sellers

A shortage occurs when

quantity demanded exceeds quantity supplied.

If the market for Sport Utility Vehicles has excess supply, then one can say that

quantity supplied is greater than quantity demanded.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her

reservation price

The quantity of Revlon nail polish demand by Jen decreased after the price of Revlon nail polish increased. Jen decided to find a cheaper brand of nail polish. This is called

substitution effect of a price change

In a free market, if the price of a good is above the equilibrium price, then

suppliers, dissatisfied with growing inventories, will lower the price.

In the market for coffee, for some consumers

tea is a substitute

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve

Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect

the demand for SUVs to decrease

Assume the demand for coffee increase while the supply decreases. Which of the following outcomes is certain to occur?

the equilibrium price of coffee will rise

In general, when the supply curve shits to the left and demand is constant then

the equilibrium price will rise

Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur?

the equilibrium quantity of bagels will rise

Assume both the demand and supply of beef decrease. Which of the following outcomes is certain to occur?

the equilibrium quantity of beef will fall

The entire group of buyers and sellers of a particular good or service makes up

the market

If, in a particular market, all unexploited opportunities have been realized, one can conclude that

the market is in equilibrium

Which of the following would cause an increase in quantity supplied of wheat?

the price farmers receive for their wheat rises

An increase in the quantity demanded of tea occurs whenever

the price of the tea falls

Which is the following is NOT a determinant of demand for gasoline

the quantity of gasoline supplied

Suppose the price of doughnuts decreases and doughnut holes are a by-product of producing doughnuts. One would expect

the quantity supplied of doughnuts to decrease.

Efficiency occurs when

the socially optimal quantity of goods and services is being produced

As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demand for coffee decreases. This is called

the substitution effect

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Bad on this observation, you suspect that

the wage for teachers at those schools is lower than the equilibrium wage.

Suppose that the production of oranges reduces global warming by .1%. The equilibrium price of oranges is ___ because not all of the ___ are counted for in the marketplace.

too low; benefits

Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be ___ because not all of the ___ are accounted for in the marketplace

tow low; costs

For two good, X and Y, to be classified as substitutes, it must be the case that

when the price of X rises, the demand for Y increases

A regulated maximum price that is above the equilibrium price

will lead to excess supply in the market

Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table principle, Joe and Mary

will make a trade