chapter 3

Which of the following is NOT true of an equilibrium price? -Consumers who are willing to pay the equilibrium price can acquire the good. -It measures the value of the last unit sold to consumers. -It is always a fair and just price. -Firms who are willing to accept the equilibrium price can sell what they produce.

It is always a fair and just price.

Which of the following is NOT true of a demand curve? -It has a negative slope. -It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. -It shows how an increase in price leads to an increase in quantity demanded of a good. -It relates the price of an item to the quantity demanded of that item.

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

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

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

price ceiling

a maximum price that can be legally charged for a good or service

If demand for a good decreases, as income decreases, the good is:

a normal good

rent control

a price ceiling placed on apartment rent

Minimum wage laws are an example of:

a price floor

Where is the equilibrium price?

a price where the quantity demanded and quantity supplied are equal

A market comprised of a downward-sloping demand curve that intersects and 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.

If both supply and demand decrease simultaneously, the new equilibrium price will (remain the same, increase, decrease or be indeterminate) [__________________________] and the new equilibrium quantity will (remain the same, increase, decrease or be indeterminate) [______________________________].

be indeterminate; decrease

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

both demanders and suppliers

excess demand incentive

buyer has incentive to raise price rather than not be able to purchase good/service

Movement along the curve

change in quantity demanded, results from a change of the PRICE OF GOOD

When buyers adjust for two recent studies that conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought, the equilibrium price of high fiber foods will (remain the same, increase, or decrease). [__________________]

decrease

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

decrease the supply of cookies.

Suppose that two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:

demand for high-fiber foods will decrease.

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.

demand curves slope

downward

excess supply incentive

incentive to lower price rather than have inventories build up

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 just one double cheeseburger for lunch. This is best describe as a(n):

income effect

When firms that produce cookies adjust for an increase in the price of flour (an input into the cookie production process), the equilibrium price of cookies will (remain the same, increase, or decrease). [________________________]

increase

The supply curve illustrates that firms:

increase the quantity supplied of a good when its price rises.

If a market is in equilibrium and demand increases while supply decreases, the new equilibrium price will (remain the same, increase, decrease, or be indeterminate) [_____________________________] and the new equilibrium quantity will (remain the same, increase, decrease, or be indeterminate).[____________________________]

increase; be indeterminate

As consumers' incomes decrease, the demand curve for ramen noodles shifts to the right. Therefore, ramen noodles are:

inferior goods

According to the textbook, government price controls fail because:

legislation cannot repeal basic economic motives

Buyers and sellers of a particular good comprise the:

market for the good.

price ceiling above equilibrium price

non-binding, you'll never get there

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

purchasers and sellers

definition of demand curve

quantity buyers would purchase @ each possible price

if controlled price < equilibrium price

quantity demanded increases and quantity supplied decreases

definition of supply curve

quantity sellers willing to offer @ each price

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.

The demand curve illustrates the fact that consumers:

tend to purchase more of a good as its price falls.

When a market is not in equilibrium:

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

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

the substitution effect.

supply curves slope

upward

A regulated price ceiling that is above the equilibrium price:

will have no effect on the market.

If a price is below equilibrium,

A shortage will cause the price to rise and the quantity supplied to increase.

If a price is above equilibrium,

A surplus will cause the price to fall and the quantity supplied to decrease.

When you hear quantity ask

Did the price of the good change?

Which of the following is NOT a characteristic of governmental rent controls?

Equitable distribution of apartments.