Unit 2 Exam - Demand, Supply, and Prices

Which of the following is not a result of minimum wage laws? a. An increase in the number of unskilled laborers in the job market b. An increase in production c. An increase in teenage unemployment d. An increase in school dropout rates

b. An increase in production Employers generally pay wages based on productivity. A minimum wage law may force employers to pay higher wages to workers whose productivity does not justify the wage. The minimum wage laws are not related to productivity.

An increase in the market price of a product, all other things equal, results in a. a change of position along the existing supply curve, decreasing the quantity supplied. b. a change of position along the existing supply curve, increasing the quantity supplied. c. a shift of the supply curve inward. d. a shift of the supply curve outward.

b. a change of position along the existing supply curve, increasing the quantity supplied. An increase in the price of a product will cause a movement along an existing supply curve. This movement is a "change in quantity supplied." A change in any determinant (except price) will result in a shift in the supply curve. This shift is a "change in supply."

When the price of a complement for good X rises, the demand for good X a. increases. b. decreases. c. stays constant. d. will decrease at first but increases over time.

b. decreases. When the price of a complement for good X rises, consumers will buy less of good X at every price. Demand for good X falls because the price for a product that is used with good X has increased.

A rent control below the equilibrium price will cause a. excess supply. b. excess demand. c. a surplus. d. no change in the market.

b. excess demand. A rent control, or price ceiling, below the equilibrium price causes excess demand in the market. It is demand that cannot be met by the available supply because suppliers are not willing to put enough supply on the market at the controlled price. Buyers must engage in non-price competition to ration the shortage.

Shortages result from a. price controls above equilibrium. b. price controls below equilibrium. c. unlimited wants and limited resources. d. quantity supplied greater than quantity demanded.

b. price controls below equilibrium. A shortage results from the government imposing a ceiling below the equilibrium. At the imposed price, suppliers are not willing and able to supply the quantity demanded by consumers.

A drought that destroys half of the corn crops in the Midwest would cause a. the equilibrium price and quantity of corn to be higher. b. the equilibrium price of corn to be higher and the equilibrium quantity to be lower. c. no change in equilibrium because demand and supply will shift equally. d. a lower equilibrium price and a lower quantity demanded.

b. the equilibrium price of corn to be higher and the equilibrium quantity to be lower. The destruction of half the crops affects only the supply side of the market. In agriculture, weather can be considered an input and a drought, in effect, raises the price of that input. The supply curve shifts to the left, yielding a higher equilibrium price and a lower quantity. The demand curve is unchanged.

When the quantity demanded for a particular good exceeds the quantity supplied for that good, a. the quantity demanded will increase as the price increases. b. the quantity demanded will decrease as the price increases. c. the quantity demanded will decrease as the price decreases. d. the quantity demanded will remain constant.

b. the quantity demanded will decrease as the price increases. The quantity demanded will decrease as the price increases. Price and quantity are inversely related. If quantity demanded is greater than quantity supplied, the bidding mechanism works to force the price up to the point where quantity demanded equals quantity supplied.

Generally, those people who advocate minimum-wage laws believe a. there are no negative effects of minimum-wage laws. b. there are some negative effects of the laws but the benefits outweigh the costs. c. minimum-wage laws will solve a maldistribution of income. d. that the market system should be replaced with a planned economy.

b. there are some negative effects of the laws but the benefits outweigh the costs. Although advocates acknowledge some problems with the minimum-wage laws, they believe that the societal benefits of raising the wages of the lowest-paid workers outweigh the negative effects.

Examine the graph. If the government passes a minimum wage of $8.00 per hour, a. there will be a shortage of 20,000 units of labor. b. there will be a surplus of 20,000 units of labor. c. the labor market will be in equilibrium at a wage of $6.00 per hour and 20,000 units of labor. d. the minimum wage will not affect the market.

b. there will be a surplus of 20,000 units of labor.

Which of the following will cause an outward shift of the market supply curve? a. A rise in the price of inputs b. A change in the price of the good c. Improvements in technology d. A decrease in technology

c. Improvements in technology Improvement in the level of technology causes an outward shift to the market supply curve. Technology is a determinant of supply. Any increase in supply is an outward movement.

According to the graph, if the government imposes a minimum wage of $4 per hour in this labor market, there will be a. excess supply of 2,000 units of labor. b. excess demand of 2,000 units of labor. c. no effect on this labor market. d. an indeterminate effect.

c. no effect on this labor market. The market wage rate in this market is $5 per hour. When the legal minimum is below the market wage, there is no effect on the market.

If an increase in income results in an increase in the demand for houses, then houses are a. inferior goods. b. luxury goods. c. normal goods. d. substitute goods.

c. normal goods.

If a producer of bread thinks that the price of bread will fall next week, the producer will a. stop making bread this week. b. hold some of this week's bread for next week when consumers will want more. c. sell all the bread this week if possible. d. be unaffected by the price next week.

c. sell all the bread this week if possible. The producer who expects lower prices in the future will try to sell all he or she can at the current, relatively higher price. In this situation, a rational producer would produce and sell as much as possible in the current week and sell less the next week when the price is expected to fall.

Refer to the graph. If the price is $2, all the following are true except a. sellers' inventories fall. b. buyers bid up the price. c. sellers bid down the price. d. there is excess demand.

c. sellers bid down the price.

Examine the graph. If the government passes a minimum wage of $4.00 per hour, a. there will be a shortage of 20,000 units of labor. b. there will be a surplus of 20,000 units of labor. c. the minimum wage will not affect the market. d. the labor market will be in equilibrium at a wage of $6.00 per hour and 20,000 units of labor.

c. the minimum wage will not affect the market.

Besides the price of substitutes and complements, other determinants of demand include a. the price of inputs and natural resources. b. technology and the number of sellers. c. the price of the product, income, and consumers' tastes. d. A and C.

c. the price of the product, income, and consumers' tastes. Factors affecting the demand for any particular good are the price of the good, the price of substitutes and complements, consumers' income, consumers' tastes and preferences, and future expectations.

According to the Law of Demand, when the price of a good increases, a. income usually increases. b. the model shows the change by shifting the demand curve. c. there is movement along the demand curve but it does not shift. d. all other determinants of demand can also change.

c. there is movement along the demand curve but it does not shift. A change in price changes the quantity demanded. It is represented by movement along the demand curve. Other factors, such as income and tastes, cause the curve to shift.

The competitive equilibrium point occurs when a. there is no tendency to change. b. there is no excess demand. c. there is no excess supply. d. all of the above.

d. all of the above. In a competitive equilibrium, there is no pressure to change either price or quantity because there is no excess demand or excess supply.

The upward-sloping supply curve a. is representative of the law of supply. b. shows that as the price of a good or service increases, the quantity offered for sale generally increases. c. illustrates increasing opportunity costs. d. all of the above.

d. all of the above. The upward-sloping supply curve says that, at higher prices, suppliers are willing and able to put more product on the market. The supply curve is the suppliers' opportunity cost because it represents the prices at which suppliers will add one more unit, foregoing production of something else.

A price floor that is less than the equilibrium price causes a. excess supply. b. excess demand. c. non-price competition. d. no change in the market.

d. no change in the market. A price floor that is below the equilibrium price has no effect on the market. The market still can reach the equilibrium price and quantity and disregard the floor.

An effective, well-intentioned minimum wage law can be expected to a. clear the market for blue-collar workers. b. increase employment for those workers covered under the law. c. increase the number of firms in those industries where the law is in force. d. reduce the hours worked for some unskilled workers.

!!! not 100% sure ... it's definitely not B though ...

The substitution effect says that when the price of a good increases, a consumer buys a smaller quantity of that good because the consumer's purchasing power has decreased. True False

False

Changes in the input prices or technology are represented by a movement along the supply curve and are called changes in quantity supplied. True False

False Changes in the input prices or technology are represented by a shift in the supply curve and are called changes in supply. A change in the market price of the product is represented by movement along the supply curve and is called a change in quantity supplied.

If the government imposes a $2 tax on the sellers of a product, the supply curve shifts inward parallel to itself and intersects the demand curve at a lower price and higher quantity. True False

False The demand curve shifts inward parallel to itself and intersects the demand curve at a different point. The equilibrium quantity is lower, and the equilibrium price is higher.

If a war destroys a country's infrastructure and technology, the market supply curves for many industries will shift inward. True False

True

A demand function is a mathematical formula that specifies the relationship between the demand for a good or service and the variables that influence that demand. True False

True A demand function is a mathematical relationship that predicts the quantity demanded of a good as a function of the factors that influence consumer behavior. It describes consumer behavior.

Households will buy more of a normal good at every price when a. the household income increases. b. the household income decreases. c. the household income stays the same. d. none of the above.

a. the household income increases. Demand for a normal good responds to an increase in income, by increasing. The change is represented by an outward shift in the demand curve.

If the price of inputs for making pizza increases, a. there will be less pizza supplied because the costs are increasing. b. there will be more pizza supplied because the costs are increasing. c. there will be more pizza supplied because the costs are decreasing. d. there will be less pizza supplied because the costs are decreasing.

a. there will be less pizza supplied because the costs are increasing. An increase in the price of inputs would increase the costs to supply a product. If costs become greater than revenues, producers will experience losses. Supply will fall to zero if producers move their resources to other products.

Which of the following does not shift a supply curve? a. A change in the price of inputs needed to produce the good b. A change in the good's price c. A change in the technology used to produce a good d. A change in the expected future price of a good

b. A change in the good's price

An increase in the price of Fords will have what likely effect in the market for Chevrolets? a. It will have no effect. b. The demand for Chevrolets will decrease. c. The demand for Chevrolets will increase. d. The supply of Chevrolets will increase.

c. The demand for Chevrolets will increase. Related goods such as substitutes affect the demand for the primary good. In this case, Fords and Chevrolets are substitutes for each other, so when the price of one increases, demand for the other increases.