CHAPTER 4: REVIEW QUESTIONS

When Asian countries went into a recession in 1997, the demand for oil _____ and the price of oil _____. A. Decreased; decreased B. Decreased; increased C. Increased; decreased D. Increased; increased

A. Decreased; decreased

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/ removal services will _____ the quantity supplied causing the price of tree cutting/ removal services to _____. A. Exceed;rise B. Equal; remain unchanged C. Decrease; fall D. Be less than; rise.

A. Exceed; rise

In Veron Smith's supply and demand lab experiment: A. Smith knew the true demand and supply curves, but the subjects did not. B. It took a long time to arrive at equilibrium. C. The subjects did not know their own willingness to pay or sell. D. There were many unrealized gains from trade.

A. Smith knew the true demand and supply curves, but the subjects did not.

Economic experiments suggest that the real world closely follows theoretical supply and demand. A. True B. False

A. True

In a free market setting where quantity supplied is 40 units and quantity demanded is 50 units, price will: A. Remain the same B. Rise C. Move in an indeterminate direction D. Fall

B. Rise

Which statement most accurately explains the upward trend in the market price of oil since around the year 2000? A. The demand for oil has decreased while the supply of oil has increased. B. The demand for oil has increased faster than the supply of oil has increased. C. Both the demand for and the supply of oil has decreased. D. The supply of oil has increased faster than the demand for oil has increased.

B. The demand for oil has increased faster than the supply of oil has increased.

Veron Smith tested the supply and demand model in the laboratory and found that: A. The buyers with the lowest willingness to pay bought the goods. B. The model may work in real life, but it does not work in the laboratory. C. Buyers and sellers quickly converged on the predicted equilibrium. D. The results were not consistent with competitive price theory, as he expected.

C. Buyers and sellers quickly converged on the predicted equilibrium.

in 1980 when Iraq attacked Iran, the price of oil _____ because of a _____. A . Fell; increased demand for oil. B. Fell; increased quantity of oil supplied C. Increased; disruption in the supply of oil. D. Increased; decrease in the demand for oil.

C. Increased; disruption in the supply of oil

Imagine a free market in which at a price of $10, quantity supplied is 50 units and quantity demanded is 50 units. Equilibrium price in this market: A. Is less than $10 B. Is greater than $10. C. Is equal to $10 D. Differs from $10 in an indeterminate direction

C. Is equal to $10

The growing economies of China and India have increased the demand for: A. Automobiles, leading to rising oil supplies and falling prices. B. Oil, leading to lower oil prices in the early part of the twenty-first century. C. Oil, leading to higher prices in the early part of the twenty-first century. D. Automobiles, leading to a decrease in the supply of oil and rising oil prices.

C. Oil, leading to higher prices in the early part of the twenty-first century.

Laboratory experiments by Vernon Smith support: A. A market equilibrium where the quantity supplied always exceeds the quantity demanded. B. A market equilibrium where the quantity demanded always exceeds the quantity supplied. C. The supply and demand model's usefulness in predicting changes in a free market. D. Suspicions that a market equilibrium does not exist in the real world.

C. The supply and demand model's usefulness in predicting changes in a free market.

Consumers who traded in a used car for a new vehicle under the Cash-for-Clunkers program received a voucher worth up to $4,500 to offset the price of the consumer's new vehicle. What effect did that program's requirement to destroy all trade-in cars have on the market for used cars? A. The demand for used cars decreases, decreasing the price of used cars. B. The supply of used cars increased, decreasing the price of used cars. C. The supply of used cars decreased, increasing the price of used cars. D. The demand for used cars increased, increasing the price of used cars.

C. The supply of used cars decreased, increasing the price of used cars.

Which of the following is a contribution of economist Vernon Smith? A. The idea of movements along the supply and demand curves. B. The discovery of equilibrium price. C. The theory of demand shocks. D. Experimental evidence of equilibrium price.

D. Experimental evidence of equilibrium price.

Which choice explains how the OPEC crises of 1973 affected oil prices? A. The demand for oil increased, leading to a rise in oil prices. B. The supply of oil was increased, leading to a fall in oil prices. C. The demand for oil decreased, leading to a fall in oil prices. D. The supply of oil was reduced, leading to a rise in oil prices.

D. The supply of oil was reduced, leading to a rise in oil prices.