Chapter 3 Concept Quiz

According to the law of supply, what is the relationship between price and quantity supplied? A. Direct B. No relationship C. Inverse D. It depends on the change in price.

A. Direct The law of supply states that, all other things being equal, quantity supplied rises when prices rise, and quantity supplied falls when prices fall.

Which of the following is NOT a characteristic of a market economy? A. Significant government intervention B. Little or no government intervention C. Buyers and sellers motivated by self-interest D. Prices determined by demand and supply

A. Significant government intervention

Refer to the following graph. The demand curve slopes downward because A. prices and quantity demanded move in opposite directions. B. prices and quantity demanded move in the same direction. C. prices and quantity demanded have no relationship. D. prices and quantity demanded remain unchanged.

A. prices and quantity demanded move in opposite directions. The demand curve is a graph of the relationship between the prices on the demand schedule and the quantity demanded at those prices. Because prices and quantity demanded move in opposite directions, the demand curve slopes downward.

Which of the following firms operates as a monopoly? A. A car manufacturer B. A local cable company C. A corn farmer D. A fish vendor at a neighborhood market

B. A local cable company Monopolies exist when a single company supplies the entire market for a particular good or service. A local cable company functions like a monopoly, since it supplies cable for the entire local market.

Flour is a factor of production of cupcakes. How will an increase in the price of flour affect the market for cupcakes? A. Overall supply will increase. B. Overall supply will decrease. C. Quantity supplied will increase. D. Quantity supplied will decrease.

B. Overall supply will decrease. Change in the cost of inputs is one determinant of supply that will cause supply to shift. If the prices of inputs increase, a firm's profit margins fall. Lower profit margins make the firm less willing to supply the good; therefore, supply will decrease.

What must happen to the market price in order for a shortage to be eliminated? A. Price must fall. B. Price must rise. C. Price must stay the same. D. Price may rise or fall depending on the size of the shortage.

B. Price must rise. Whenever the quantity demanded exceeds the quantity supplied, the market price experiences upward pressure. As the price rises, suppliers continue to increase the quantity that they supply and buyers demand and increasingly smaller quantity until the market clears and quantity supplied is equal to quantity demanded.

Refer to the following figure. At a price of $5, this market is experiencing A. equilibrium. B. a shortage. C. a surplus. D. None of the other options are correct.

B. a shortage. A shortage occurs whenever the quantity supplied is less than the quantity demanded. At price levels below $10, this market experiences a shortage, since quantity supplied is less than quantity demanded for all prices below $10.

In an imperfect market, individual firms A. are always able to set the price of their product. B. are able to influence the price of their product. C. have no influence over the price of their product. D. take the market price as given.

B. are able to influence the price of their product. When sellers produce goods and services that are different from their competitors, they gain some control over the price that they charge.

For a firm to have market power, it must A. be a monopoly. B. have some control over price. C. be the sole producer of a product. D. rely on the government to protect its price.

B. have some control over price. If a firm produces a specialized product such as a particular type of burger or computer game, it affords the firm the opportunity to charge a higher price than charged by its competitors for a similar good.

Suppose that burgers and fries are complements in consumption. If the price of fires increases, A. overall demand for burgers will increase. B. overall demand for burgers will decrease. C. quantity demanded for burgers will increase. D. quantity demanded for burgers will decrease.

B. overall demand for burgers will decrease. A change in the price of a related good causes a shift of the demand curve for the other good. Complements are two goods used together.

Refer to the graph below. The supply curve is upward sloping because A. prices and quantity supplied move in opposite directions. B. prices and quantity supplied move in the same directions. C. prices and quantity supplied have no relationship. D. prices and quantity supplied remain unchanged.

B. prices and quantity supplied move in the same directions. The supply curve is a graph of the relationship between the prices on the supply schedule and the quantity supplied at those prices. Because prices and quantity supplied move in the same direction the supply curve slopes upward.

Which of the following firms participates in a competitive market? A. A new car manufacturer, such as Ford, Honda, Toyota, or GMC B. A software producer, such as Microsoft C. A corn farmer at a famer's market D. A local electric utility company

C. A corn farmer at a farmer's market The market for corn best fits the description of a competitive market because corn farmers sell similar goods and there are many sellers and buyers in the market for corn.

Suppose that Coca Cola and Pepsi are substitutes in consumption. If the price of Coca Cola decreases, then which of the following graphs would be relevant for Pepsi? A. Graph A B. Graph B C. Graph C D. Graph D

C. Graph C Substitutes are two goods that are used in place of one another. Since Coca Cola and Pepsi are substitutes in consumption, a fall in the price of Coca Cola will result in a leftward shift, or decrease, of the demand for Pepsi, which leads to fall in demand for Pepsi and a lower price.

According to the law of demand, what is the relationship between price and quantity demanded? A. Direct B. No Relationship C. Inverse

C. Inverse The law of demand states that, all other things being equal, quantity demanded falls when prices rise, and quantity demanded rises when prices fall.

Refer to the following image. When a market is in equilibrium, which of the following is true? A. Quantity supplied exceeds quantity demanded. B. Quantity supplied is less than quantity demanded. C. Quantity supplied is equal to quantity demanded. D. There is no relationship between quantity supplied and quantity demanded.

C. Quantity supplied is equal to quantity demanded. When a market is in equilibrium, supply and demand are balanced. This is represented graphically by the point at which the demand curve and supply curve and supply curve interest. According to the law of supply and demand, market prices adjust to bring the quantity supplied and the quantity demanded into balance, or equilibrium.

Refer to the following figure. At a price of $15, this market is experiencing A. equilibrium. B. shortage. C. a surplus. D. None of the other options are correct.

C. a surplus. A surplus occurs whenever the quantity supplied is greater than the quantity demanded. At price levels above $10, this market experiences a surplus, since quantity supplied is greater than the quantity demanded for all prices above $10.

Which of the following will cause a shift rightward in the supply curve for tobacco? A. A fall in the number of tobacco farmers in the market B. An increase in taxes on tobacco C. Removal of government subsidies to tobacco farmers D. An improvement in the technology used in the production of tobacco

D. An improvement in the technology used in the production of tobacco A rightward shift of the tobacco supply curve means there is an increase in the supply of tobacco. An improvement in technology allows a producer to increase output with the same resources or to produce a given level of output with fewer resources.

A change in which of the following will cause a change in the quantity supplied of coffee? A. The technology or the production process of making coffee B. Anticipation of a change in the price of coffee C. The wages of coffee bean pickers D. The price of coffee

D. The price in coffee The law of supply states that, all other things being equal, the quantity supplied increases when the price rises, and the quantity supplied falls when the price falls. Therefore, the price of coffee will cause a change in the quantity supplied of coffee.

A change in which of the following will cause a change in the quantity demanded of coffee? A. Consumer income B. The price of green tea, a substitute for coffee C. The number of coffee consumers D. The price of coffee

D. The price of coffee A change in the price of coffee will cause a change in the quantity demanded of coffee. A change in any of the non-price determinants of demand, for example a change in consumer income, will cause a shift of the demand curve.

In a competitive market, the price of the product is A. independently set by each competing seller. B. set by the market leader and then copied by other sellers. C. jointly set after a meeting of all sellers in the market. D. set by market supply and demand.

D. set by market supply and demand. In a competitive market, the goods and services sold are similar and there are many buyers and sellers. Where there are many buyers and sellers of a similar good or service, the price and quantity sold are determined by the market rather than any one person or business.