Chapter 3 Macro Economics
Given the picture on the right, if buyers currently purchase 7,000 gallons of milk per day, then the reservation price of the last buyer willing to buy milk (the marginal buyer) is:
$2
Suppose Martin just bought a guitar from Jackson off Craigslist for $110. Martin's reservation price was $140, and Jackson's reservation price was $100. The buyer's surplus from this transaction was
$30
Failure to achieve economic efficiency means that
-everyone in the economy could be made better off -total economic surplus is not maximized
Given the picture on the right, if sellers currently produce 3,000 gallons of milk per day, then the marginal cost of the 3,000th gallon of milk is:
2
In the figure displayed, what is the equilibrium price?
3 per gallon
Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the quantity of milk supplied will equal
3,000 gallons per day.
Given the picture on the right, if the price of milk is $2 per gallon, how many gallons per day do sellers wish to sell?
3000
Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, how many apartments would tenants demand?
35,000 units per month
Given the picture on the right, if sellers currently produce 7,000 gallons of milk per day, then the marginal cost of the 7,000th gallon of milk is:
4 per gallon
Refer to the graph as shown. If the price of milk is $2 per gallon, then the consumers would be willing to purchase
7000 gallons of milk
Which of the following factors will lead to an increase in supply?
A decrease in the cost of inputs to the production process. A technological advance that lowers production costs.
Which of the following factors will lead to a decrease in demand?
A decrease in the population of potential buyers. A decrease in the price of a substitute.
Which of the following is likely to lead to an increase in the demand for cell phones?
A decrease in the price of cell phone apps (a complement to cell phones). An increase in income (assuming cell phones are a normal good).
Which of the following is likely to lead to a decrease in the current supply of gold?
An announcement that makes suppliers believe that gold prices are going to increase next year.
The introduction of rent controls could lead to which of the following?
An decrease in the quantity of apartments available for rent. Lower rent for those who live in rent-controlled apartments. Poorer maintenance of rent-controlled apartments Discrimination against tenants on the basis of race, religion, or other factors
Which of the following factors will lead to an increase in the demand for a good?
An expectation of higher prices in the future A decrease in the price of a complement
Which of the following factors will lead to a decrease in supply?
An expectation of higher prices in the future.
The smallest amount you would have to pay Bronx Pizza to get them sell an additional cheese pizza is $8.84. Thus, $8.84 is
Bronx Pizza's reservation price.
What is this graph?
Demand curve
The most John is willing to pay for a slice of pizza is $2.56. Thus, $2.56 is
John's reservation price for pizza.
Given the figure on the right, if the government of Pleasantville makes it illegal to charge more than $1,000 per month for a one-bedroom apartment, then
No effect
Which of the following will a seller's reservation price generally be equal to?
The smallest dollar amount for which a seller would be willing to sell an additional unit The marginal cost of producing another unit of the good
The socially optimal quantity is that level for which the marginal cost and marginal benefit of the good are the same.
True
An increase in the supply of corn (a rightward shift in the supply curve) could be the result of _____ in the price of an input to the production of corn.
a decrease
If a local art museum announces that it is going to lower the cost of admission into the museum next month, then this should lead to _____ in the current demand for admission into the art museum.
a decrease
If bagels and cereal are substitutes, then a decrease in the price of bagels will lead to _____ in the demand for cereal.
a decrease
If people who currently own homes learn that home prices are likely to go up in their area next year, then this should lead to ____ in the current supply of homes.
a decrease
If torrential rains wipe out this year's corn crop, this should lead to _____ in the supply of corn.
a decrease
If butter and popcorn are complements, then an increase in the price of popcorn will lead to:
a decrease in the equilibrium quantity of butter. a decrease in the equilibrium price of butter.
In which of the following situations is the market equilibrium likely to be economically inefficient:
a market in which the production of the good entails a significant cost to others (like pollution from the production process). a market in which the consumption of the good entails a significant benefit to others (like vaccinations).
A change in the quantity supplied is represented by
a movement along the supply curve.
If the demand for wine increases as people's incomes go up, then wine is _____.
a normal good
A supply curve is ______.
a schedule or graph showing the quantity of a good that sellers wish to sell at each price
A change in demand is represented by a
a shift of the entire demand curve
A change in supply is represented by
a shift of the entire supply curve
Economic efficiency occurs when
all goods and services are produced and consumed at their socially optimal levels
A medical breakthrough that decreases the cost of treating cancer should lead to ____ in the supply of cancer treatments.
an increase
If Ramen Noodles are an inferior good, then a fall in income should lead to _____ in the demand for Ramen Noodles.
an increase
If a government announcement leads home buyers to believe that house prices will go up in the future, then this should lead to _____ in the current demand for houses.
an increase
If the price of sugar falls, this is like to lead to _____ in the supply of candy.
an increase
If bread and peanut butter are complements, then a decrease in the price of peanut butter will lead to:
an increase in the amount of bread that people buy. an increase the price of bread.
If several new coffee shops open in your town, this should lead to _____.
an increase in the amount of coffee bought and sold in your town a decrease in the price of coffee
If Hulu Plus and Netflix are substitutes, then an increase in the price of Netflix should lead to:
an increase in the price of Hulu Plus. an increase in the number of people who subscribe to Hulu Plus.
Prozac and Wellbutrin are both prescription medications to treat depression. If the price of Prozac increases, then this should lead to:
an increase in the price of Wellbutrin. an increase in the number of people who use Wellbutrin.
Given that hops are an important input to the production of beer, a sharp increase in the price of hops should lead to:
an increase in the price of beer. a decrease in the amount of beer bought and sold in the market.
Given that flour is an important input to bread, an increase in the price of flour should lead to:
an increase in the price of bread. a decrease in the quantity of bread bought and sold in the market.
Two goods are complements if
an increase in the price of one causes a fall in demand for the other
Two goods are substitutes if
an increase in the price of one causes an increase in demand for the other
If a late frost damages a part of this year's orange crop, this should lead to:
an increase in the price of oranges. a decrease in the number of oranges bought and sold in the market.
A shift in the entire demand curve is considered
change in demand
A movement along the demand curve is considered
change in quantity demanded
A movement along the supply curve is considered
change in quantity supplied
A shift of the entire supply curve is considered
change in supply
If an increase in the price of one good, causes a decrease (leftward shift) in the demand for another good, then the two goods are
complements
If the demand for bread increases when the price of peanut butter falls, then this suggests that bread and peanut butter are _____.
complements
If the demand for ketchup decreases when the price of hot dogs increases, then this suggests that ketchup and hot dogs are _____.
complements
If the price of blueberries increases, then this should lead the supply of blueberry muffins to _____.
decrease
Given that college professors are an important input to the production of a college education, a decrease in the salaries of college professors would:
decrease college tuition. increase the number of students attending college.
In the figure on the right, the movement from point A to point B represents a(n)
decrease in quantity demanded.
A technological innovation that reduces the cost of extracting natural gas from the earth's surface should:
decrease the price of natural gas. increase the quantity of natural gas bought and sold in the market.
All else equal, the introduction of tractors into farming in the early 1900s is likely to have:
decreased the price of agricultural products. increased the quantity of agricultural products bought and sold in the market.
Given the picture on the right, as the quantity milk bought increases from 3,000 to 5,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.
decreases
Given the picture on the right, as the quantity milk bought increases from 5,000 to 7,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.
decreases
You observe that the price of books has gone down at the same time that the number of books bought and sold in the market has decreased. The best explanation for this is that the:
demand for books has decreased.
Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, then this would result in an excess
demand of 20,000 apartments per month.
Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the this will lead to an excess _____.
demand of 4,000 gallons per day
When all goods and services are produced and consumed at their socially optimal levels
economic efficiency is achieved
In the figure displayed, when the market price is $2, there is an:
excess demand incentive for buyers to offer a higher price
In the figure displayed, when the market price is $4, there is:
excess supply. an incentive for sellers to lower their price.
Suppose that as the price of movie tickets increases, people stop going to the movies as often because they can no longer afford to do so. This reduction in the quantity of movie tickets demanded is known as the _____ of a price change.
income effect
The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power is known as the _____ of a price change.
income effect
In the figure on the right, the movement from D to D' represents a(n)
increase in demand.
In the figure on the right, the movement from S to S' represents a(n)
increase in supply.
Given that paper is made from wood, a decrease in the price of wood should:
increase the quantity of paper bought and sold in the market. decrease the price of paper.
Movements toward efficiency make the total economic pie _____, making it possible for everyone to have a _____ slice.
larger; larger
A change in quantity demanded is represented by
shift of the demand curve
If an increase in the price of one good, causes a increase (rightward shift) in the demand for another good, then the two goods are _____.
substitutes
If the demand for tea increases when the price of coffee goes up, then this suggests that coffee and tea are:
substitutes
Suppose that as the price of movie tickets increases, people go to the movies less often and instead rent movies at home. The resulting reduction in the quantity of movies demanded is known as the _____ of a price change.
substitution effect
Suppose that as the price of pencils increases, people buy fewer pencils and instead use pens. The resulting reduction in the quantity of pencils demanded is known as the _____ of a price change.
substitution effect
The change in the quantity demanded of a good that results because buyers switch to or from substitutes when the price of the good changes is known as the _____ of a price change.
substitution effect
A schedule or graph showing the quantity of a good that sellers wish to sell at each price is known as a
supply curve
The picture on the right represents a _____.
supply curve
The numbers in the table below likely capture the daily _______ tennis balls Price ($/ball) Quantity (balls/day) 0.50 100 1.00 200 1.50 300
supply of
You observe that the price of ice cream has gone up and that less ice cream is being bought and sold. The best explanation for this is that the
supply of ice cream has decreased.
Relative to the summer months, people have less exposure to the sun during the winter. Thus, relative to the summer, we can expect _____.
the demand for sunscreen to be lower in the winter the price of sunscreen to be lower in the winter the amount of sunscreen bought and sold in the market to be lower in the winter
If people tend to go swimming more in the summer than in the winter, then we would expect _____.
the demand for swimsuits to be higher in the summer the price of swimsuits to be higher in the summer the quantity of swimsuits bought and sold to be higher in the summer
Buyer's surplus is
the difference between the buyer's reservation price and the price he or she actually pays
Total surplus is
the difference between the buyer's reservation price and the seller's reservation price.
Suppose the demand for gasoline increases at the same time the supply of gasoline falls, then we know that
the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down.
Suppose that people's incomes rise at the same time that the cost of producing cell phones falls. If cell phones are a normal good, then we know that
the equilibrium quantity of cell phones will go up, but the price could go up or down.
In the figure displayed, if the market price for milk is $2 per gallon, then:
the excess demand for milk will be 4,000 gallons per day.
In the figure displayed, if the market price for milk is $4 per gallon, then
the excess supply of milk will be 4,000 gallons per day.
A buyer's reservation price is the
the largest dollar amount the buyer would be willing to pay for a good
An increase in the price of cotton is likely to shift the supply curve for clothing (that uses cotton as an input) to
the left
The socially optimal quantity is
the quantity of a good that results in the maximum possible economic surplus from producing and consuming the good
In the figure displayed, when the price of milk is $3 per gallon
the quantity supplied equals the quantity demanded. the market is in equilibrium.
If Jason's reservation price for a pound of apples is $1.40, and the market price for a pound of apples is $1.52, then Jason
will not buy a pound of apples.
When a new technology reduces the cost of production, supply ______.
will shift to the right (increase)
