Chapter 3

The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n) A. substitution effect of a price change. B. income effect of a price change. C. decrease in buyer's reservation price. D. increase in buyer's reservation price.

substitution effect of a price change.

Which of the following is NOT a characteristic of a market in equilibrium? A. Excess supply is zero. B. All consumers are able to purchase as much as they wish. C. Excess demand is zero. D. The equilibrium price is stable, i.e., there is no pressure for it to change.

All consumers are able to purchase as much as they wish.

Which of following is not true of an equilibrium price? A. Consumers who are willing to pay the equilibrium price can acquire the good. B. It measures the value of the last unit sold to consumers. C. It is always a fair and just price. D. 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? A. It has negative slope. B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. C. It relates the price of an item to the quantity demanded of that item. D. It shows how an increase in price leads to an increase in quantity demanded of a good.

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

A good example of central planning at work in the USA would be A. Burger King's value meal price control. B. McDonald's fries being the same everywhere in the USA. C. union wages. D. New York City's rent control.

New York City's rent control.

The entire group of buyers and sellers of a particular good or service makes up A. only the demand curve. B. only the supply curve. C. a market. D. equilibrium.

a market.

A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because A. price will never change. B. quantity will never change. C. demand will never change. D. at any price other than equilibrium, forces in the market move price towards the equilibrium.

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

The equilibrium price and quantity of any good or service is established by A. only demanders. B. only suppliers. C. government regulations. D. both demanders and suppliers.

both demanders and suppliers.

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas: A. does not affect you. B. causes companies to charge a lower price, thus benefiting you. C. causes the price you pay for gas to increase. D. does not change the price you pay, but reduces the quantity of gas supplied.

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 A. centralized economy. B. capitalist economy. C. mixed economy. D. pure free-market economy.

centralized economy.

When the price of a good is below its equilibrium value, A. consumers will bid the price up. B. excess supply will occur. C. it will tend to stay below the equilibrium value. D. suppliers will notice their inventories are growing.

consumers will bid the price up.

In a free market, if the price of a good is below the equilibrium price, then A. government needs to set a higher price. B. suppliers, dissatisfied with growing inventories, will raise the price. C. demanders, to acquire the good, will bid the price higher. D. suppliers, dissatisfied with growing inventories, will lower the price.

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

A demand curve is ________ sloping because __________________. A. downward; of increasing opportunity costs B. upward; people prefer to purchase high-quality consumer goods C. downward; reservation prices tend to fall over time D. downward; fewer people are willing to buy the item at higher prices

downward; fewer people are willing to buy the item at higher prices

A market in disequilibrium would feature A. a stable price. B. consumers able to purchase all they wish at the market price. C. a stable quantity. D. either excess supply or excess demand

either excess supply or excess demand

Shelly purchases a leather purse for $400. One can infer that A. she paid too much. B. her reservation price was at least $400. C. her reservation price was exactly $400. D. her reservation price was less than $400.

her reservation price was at least $400.

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 Cheeseburger has increased from $2.50 to $2.99. You decide to have two single Cheeseburgers for lunch. This is best described as a(n) A. substitution effect. B. income effect. C. buyer's reservation price. D. seller's reservation price.

income effect.

Buyers and sellers of a particular good comprise the A. market for the good. B. demand for the good. C. supply for the good. D. production possibilities curve for the good.

market for the good.

The buyer's reservation price of a particular good or service is the A. minimum amount one would be willing to pay for it. B. same as the market price. C. maximum amount one would be willing to pay for it. D. price one must pay to ensure one gets it.

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. A. goods; not B. more; downward C. less; upward D. more; upward

more; upward

If price is above the equilibrium value, then A. producers will hope that buyers want more in the future. B. buyers are unhappy because they are unable to find the good for sale. C. producers find their inventories growing and will start to cut price. D. government must enforce a price control.

producers find their inventories growing and will start to cut price.

In order to understand how the price of a good is determined in the free market, one must account for the desires of: A. purchasers exclusively. B. sellers exclusively. C. governmental agencies exclusively. D. purchasers and sellers.

purchasers and sellers.

In a free market, if the price of a good is above the equilibrium price, then A. suppliers, dissatisfied with growing inventories, will raise the price. B. demanders, wanting to ensure they acquire the good, will bid the price lower. C. government needs to set a lower price. D. suppliers, dissatisfied with growing inventories, will lower the price.

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

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying A. the demand curve. B. an increase in demand. C. the supply curve. D. a decrease in the demand curve

the demand curve.

As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called A. the income effect. B. the change in equilibrium. C. the substitution effect. D. a shift in the demand curve.

the substitution effect.

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that A. the wage for teachers at those schools is higher than at other schools in the state. B. the wage for teachers at those schools is lower than the equilibrium wage. C. there is an excess supply of teachers. D. the reservation price among teachers is lower than for other professions.

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

Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers were selling tickets in the same seating area as yours for $25. What is probably true? A. There is excess demand for this concert at the Ticketmaster price. B. The ticket you bought was under-priced for the market. C. There is an excess supply of tickets for this concert at the Ticketmaster price. D. The Ticketmaster price is an equilibrium price.

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

A shortage occurs when A. demand is greater than supply. B. the equilibrium price is too high. C. quantity demanded exceeds quantity supplied. D. quantity supplied exceeds quantity demanded.

quantity demanded exceeds quantity supplied.

If the market for Sport Utility Vehicles has excess supply, then one can say that A. supply is greater than demand. B. quantity supplied is greater than quantity demanded. C. demand is greater than supply. D. quantity demanded is greater than quantity supplied.

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 A. marginal revenue. B. equilibrium price. C. reservation price. D. producers surplus.

reservation price.

When a market is not in equilibrium A. government intervention is required to achieve equilibrium. B. firms will increase contributions to political action committees. C. the economic motives of sellers and buyers will move the market to its equilibrium. D. it will simply stay in a state of disequilibrium.

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