ECON 2010 Ch 3
124. Suppose that the equilibrium price of DVD players increases and the equilibrium quantity increases. Which of the following best fits the observed data? A. An increase in demand with supply constant. B. An increase in demand coupled with a decrease in supply. C. An increase in demand coupled with an increase in supply. D. A decrease in demand with supply constant.
A. An increase in demand with supply constant.
70. What might cause a demand function to shift to the right? A. An increase in the price of a substitute. B. An increase in the product's own price. C. An increase in the price of a complement. D. A decrease in the price of a substitute.
A. An increase in the price of a substitute.
137. Assume the demand for coffee increases while the supply decreases. Which of the following outcomes is certain to occur? A. The equilibrium price of coffee will rise. B. The equilibrium quantity of coffee will rise. C. The equilibrium price of coffee will fall. D. The equilibrium quantity of coffee will fall.
A. The equilibrium price of coffee will rise.
134. Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is: A. a decrease in demand for ketchup with no change in supply. B. an increase in demand for ketchup with no change in supply. C. an increase in demand for ketchup and a decrease in the supply of ketchup. D. an increase in the supply of ketchup with no change in demand.
A. a decrease in demand for ketchup with no change in supply.
141. Refer to the figure above. Assume the market is originally at point W. Movement to point X is a combination of: A. an increase in quantity supplied and an increase in demand. B. an increase in supply and an increase in demand. C. an increase in supply and an increase in quantity demanded. D. a decrease in supply and an increase in quantity demanded. NEED FIGURE
A. an increase in quantity supplied and an increase in demand.
108. Refer to the figure above. An increase in supply is represented by shifting from: A. curve A to curve B. B. curve B to curve A. C. curve C to curve D. D. curve C to curve B. NEED FIGURE
A. curve A to curve B.
128. Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ________ and the equilibrium quantity will __________. A. rise; fall B. rise; rise C. fall; fall D. fall; rise NEED FIGURE
A. rise; fall
148. Assume that Joe is willing to produce another hamburger that costs $1 to make. Mary is hungry and is willing to buy a hamburger for $3. According to the No Cash on the Table Principle, Joe and Mary: A. will make a trade. B. will only make a trade if Joe can get Mary to spend more than $3 for the hamburger. C. will only make a trade if Mary can get Joe to charge less than $1 for the hamburger. D. will never trade; they will look for better deals.
A. will make a trade.
125. Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity falls. Which of the following best fits the observed data? A. An increase in demand with supply constant. B. A decrease in supply with demand constant. C. An increase in demand coupled with an increase in supply. D. A decrease in demand with supply constant.
B. A decrease in supply with demand constant.
103. Refer to the figure above. What might cause Supply to shift from the Original Supply to the New Supply? A. A storm in South America wipes out the entire coffee crop. B. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee. C. A news report that coffee consumption greatly increases productivity. D. An increase in the price of tea. NEED FIGURE
B. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee.
140. Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur? A. The equilibrium price of bagels will rise. B. The equilibrium quantity of bagels will rise. C. The equilibrium price of bagels will fall. D. The equilibrium quantity of bagels will fall.
B. The equilibrium quantity of bagels will rise.
110. Refer to the table above. Relative to column A, it appears that column B represents ______. A. an increase in quantity demanded B. an increase in demand C. a decrease in quantity supplied D. a change in supply NEED FIGURE
B. an increase in demand
143. Refer to the figure above. Assume the market is originally at point W. Movement to point Z is a combination of: A. an increase in quantity supplied and an increase in demand. B. an increase in supply and an increase in demand. C. an increase in supply and an increase in quantity demanded. D. a decrease in supply and an increase in quantity demanded. NEED FIGURE
B. an increase in supply and an increase in demand.
115. An increase in the demand for GM automobiles results in: A. a lower equilibrium price for GM automobiles. B. an increase in the quantity supplied of GM automobiles. C. an increase in the supply of GM automobiles. D. a lower equilibrium quantity of GM automobiles.
B. an increase in the quantity supplied of GM automobiles.
114. Refer to the figure above. The equilibrium price in this market is: A. nonexistent. B. between $40 and $50. C. less than $40. D. greater than $50. NEED FIGURE
B. between $40 and $50.
109. Refer to the figure above. A decrease in supply is represented by shifting from: A. curve A to curve B. B. curve B to curve A. C. curve C to curve D. D. curve D to curve C. NEED FIGURE
B. curve B to curve A.
104. Refer to the figure above. In this market, if all buyers' reservation prices for a cup of coffee increased by $1.00; A. the equilibrium price would increase by $1.00. B. the equilibrium price would increase by less than $1.00. C. the equilibrium price would increase by more than $1.00. D. the equilibrium price would not change. NEED FIGURE
B. the equilibrium price would increase by less than $1.00.
129. Refer to the figure above. If demand were to shift from D1 to D2 at the same time supply were to shift from S1 to S2: A. the equilibrium quantity would increase and the equilibrium price would remain the same. B. the equilibrium quantity would increase and the equilibrium price would increase. C. the equilibrium quantity would remain the same and the equilibrium price would increase. D. the equilibrium quantity would decrease and the equilibrium price would remain the same. NEED FIGURE
B. the equilibrium quantity would increase and the equilibrium price would increase.
150. If, in a particular market, all unexploited opportunities have been realized, one can conclude that: A. government regulation has proven successful. B. the market is in equilibrium. C. demanders are unable to find adequate amounts of the good. D. excess demand is present.
B. the market is in equilibrium.
120. Refer to the figure above. Suppose supply increases substantially. Then: A. demand will also increase. B. the quantity demanded will increase. C. the quantity demanded will decrease. D. price will also increase substantially. NEED FIGURE
B. the quantity demanded will increase.
146. Efficiency occurs when: A. a market is in equilibrium. B. the socially optimal quantity of goods and services is being produced. C. the individually rational quantity of goods and services is being produced. D. the government does not interfere with market prices.
B. the socially optimal quantity of goods and services is being produced.
153. Suppose that the production of oranges reduces global warming. The equilibrium price of oranges is _______ because not all of the _________ are accounted for in the marketplace. A. too high; benefits B. too low; benefits C. too low; costs D. optimal; costs
B. too low; benefits
101. Refer to the figure above. In the original market equilibrium: A. 50 cups of coffee are sold for $1.00 each. B. 50 cups of coffee are sold for $2.50 each. C. 40 cups of coffee are sold for $2.00 each. D. 60 cups of coffee are sold for $1.50 each. NEED FIGURE
C. 40 cups of coffee are sold for $2.00 each.
138. Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur? A. The equilibrium price of sugar will rise. B. The equilibrium quantity of sugar will rise. C. The equilibrium price of sugar will fall. D. The equilibrium quantity of sugar will fall.
C. The equilibrium price of sugar will fall.
3. 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. the equilibrium.
C. a market.
142. Refer to the figure above. Assume the market is originally at point W. Movement to point Y is a combination of: A. an increase in quantity supplied and an increase in demand. B. an increase in supply and an increase in demand. C. an increase in supply and an increase in quantity demanded. D. a decrease in supply and an increase in quantity demanded.
C. an increase in supply and an increase in quantity demanded.
147. Efficiency is an important goal in economics because it: A. assures a fair outcome. B. assures a normative outcome. C. assures a higher level of output. D. takes into consideration the distribution of income.
C. assures a higher level of output.
106. Refer to the figure above. An increase in demand is represented by shifting from: A. curve A to curve B. B. curve B to curve A. C. curve C to curve D. D. curve D to curve C. NEED FIGURE
C. curve C to curve D.
117. When the supply of a good decreases, consumers will eventually: A. decrease their demand. B. increase their preferences for the good. C. decrease their quantity demanded. D. increase their quantity demanded.
C. decrease their quantity demanded.
105. Refer to the figure above. Suppose the coffee lobby convinced the legislature to impose a price control requiring that coffee prices must be at least $2.50, and that the original demand curve and original supply curve were applicable. The most likely result would be: A. a short term excess demand for coffee, followed by an increase in price. B. excess demand for coffee that would not correct itself because price is set by law. C. excess supply of coffee that would not correct itself because price is set by law. D. new equilibrium at a price of $2.50 and a quantity of 50 cups. NEED FIGURE
C. excess supply of coffee that would not correct itself because price is set by law.
131. If both supply and demand increase simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________. A. lower; lower B. lower; indeterminate C. indeterminate; higher D. higher; indeterminate
C. indeterminate; higher
156. The No Cash on the Table Principle asserts that: A. in equilibrium, a few unexploited opportunities exist. B. sometimes tips aren't picked up. C. in disequilibrium, no opportunities exist. D. in equilibrium, all opportunities have been exploited.
D. in equilibrium, all opportunities have been exploited.
151. The situation described in the book as "Smart for One, Dumb for All" occurs when: A. individuals, when acting rationally, benefit society as a whole. B. individuals make better decisions when acting alone than when in groups. C. individuals, when acting rationally, fail to take advantage of all opportunities for social benefit. D. a market is in equilibrium.
C. individuals, when acting rationally, fail to take advantage of all opportunities for social benefit.
17. The buyer's reservation price of a particular good or service is the: A. minimum amount the buyer would be willing to pay for it. B. same as the market price. C. maximum amount the buyer would be willing to pay for it. D. price the buyer must pay to ensure he or she gets it.
C. maximum amount the buyer would be willing to pay for it.
75. If the demand for computers shifts to the right as consumers' incomes rise, computers are A. inferior goods. B. complement goods. C. normal goods. D. substitute goods.
C. normal goods.
130. If a market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is ________ and the change in the equilibrium quantity is _________. A. positive; positive B. positive; negative C. positive; indeterminate D. indeterminate; positive
C. positive; indeterminate
122. In general, when the demand curve shifts to the right and supply remains constant then: A. quantity demanded will rise. B. the equilibrium price will fall. C. the equilibrium quantity will rise. D. the market cannot reestablish an equilibrium.
C. the equilibrium quantity will rise.
123. Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data? A. An increase in demand with supply constant. B. An increase in demand coupled with a decrease in supply. C. An increase in demand coupled with an increase in supply. D. A decrease in demand with supply constant.
D. A decrease in demand with supply constant.
102. Refer to the figure above. What might cause Demand to shift from the Original Demand to the New Demand? A. An expectation that coffee prices will fall in the future. B. An increase in the price of coffee creamer. C. A decrease in the price of tea. D. An increase in incomes. NEED FIGURE
D. An increase in incomes.
126. Suppose that the equilibrium price of apples falls and the equilibrium quantity increases. Which of the following best fits the observed data? A. An increase in demand with supply constant. B. A decrease in supply with demand constant. C. An increase in demand coupled with an increase in supply. D. An increase in supply with demand constant.
D. An increase in supply with demand constant.
43. You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be? A. At the original price, the quantity demanded was greater than the quantity supplied. B. At the original price, there was a shortage of bakery products. C. The original price was an equilibrium price because it was established in a free market. D. At the original price, quantity supplied was greater than quantity demanded.
D. At the original price, quantity supplied was greater than quantity demanded.
154. Which of the following is NOT a condition for maximizing total economic surplus in a particular market? A. All private costs of production must be included. B. All social costs of production must be included. C. All private benefits of consumption must be included. D. Government regulation of the market is needed.
D. Government regulation of the market is needed.
2. A good example of central planning at work in the U.S. would be: A. Burger King's value meal price control. B. McDonald's fries being the same everywhere in the U.S. C. union wages. D. New York City's rent control.
D. New York City's rent control.
155. Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not? A. There is an excess demand for parks in the neighborhood. B. There is an excess supply of parks in the neighborhood. C. The reservation price for a clean park exceeds the cost of cleaning it. D. No single person's reservation price to clean the park makes it worth cleaning it.
D. No single person's reservation price to clean the park makes it worth cleaning it.
139. Assume both the demand and the supply of beef decrease. Which of the following outcomes is certain to occur? A. The equilibrium price of beef will rise. B. The equilibrium quantity of beef will rise. C. The equilibrium price of beef will fall. D. The equilibrium quantity of beef will fall.
D. The equilibrium quantity of beef will fall.
116. Which of the following is NOT a determinant of demand for gasoline? A. Consumers' incomes. B. The price of diesel. C. The price of automobiles. D. The quantity of gasoline supplied.
D. The quantity of gasoline supplied.
111. Refer to the table above. Relative to column C, it appears that column D represents ______. A. an increase in quantity supplied. B. an increase in demand. C. a decrease in quantity demanded. D. a decrease in supply. NEED FIGURE
D. a decrease in supply.
136. Suppose that the equilibrium price of French fries rises while the equilibrium quantity falls. The most consistent explanation for these observations is: A. a decrease in demand for French fries with no change in supply. B. an increase in demand for French fries with no change in supply. C. an increase in the supply of French fries and an increase in the demand for French fries. D. a decrease in the supply of French fries with no change in demand.
D. a decrease in the supply of French fries with no change in demand.
135. Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most consistent explanation for these observations is: A. a decrease in demand for pickles with no change in supply. B. an increase in demand for pickles with no change in supply. C. a decrease in the supply of pickles and a decrease in the demand for pickles. D. an increase in the supply of pickles with no change in demand.
D. an increase in the supply of pickles with no change in demand.
149. When two people agree to a price in a negotiation, we can assume that: A. each one will receive equal benefits from the transaction. B. the seller will receive more benefit from the transaction than the buyer. C. only one of the parties will benefit, but there is not enough information to determine which one it will be. D. both parties will benefit.
D. both parties will benefit.
107. Refer to the figure above. A decrease in demand is represented by shifting from: A. curve A to curve B. B. curve B to curve A. C. curve C to curve D. D. curve D to curve C. NEED FIGURE
D. curve D to curve C.
144. Suppose that both supply and demand for iPads decrease. One can predict that the: A. equilibrium price will rise but the equilibrium quantity can increase or decrease. B. equilibrium price and quantity will decrease. C. equilibrium price and quantity will rise. D. equilibrium quantity will fall but the equilibrium price can rise or fall.
D. equilibrium quantity will fall but the equilibrium price can rise or fall.
112. Refer to the figure above. Assume that column A and column B are the initial demand and supply curves. At a price of $30, the market would experience: A. an equilibrium. B. excess demand of 95 units. C. excess supply of 45 units. D. excess demand of 45 units. NEED FIGURE
D. excess demand of 45 units.
113. Refer to the figure above. Assume that column A and column B are the initial demand and supply curves. At a price of $50, the market would experience: A. an equilibrium. B. excess demand of 5 units. C. excess supply of 70 units. D. excess supply of 5 units. NEED FIGURE
D. excess supply of 5 units.
121. Refer to the figure above. Suppose that only demand has suddenly shifted to the left. To restore equilibrium, this market will have an immediate: A. excess demand, which will cause prices to rise to a new equilibrium. B. excess supply, which will cause prices to rise to a new equilibrium. C. excess demand, which will cause prices to fall to a new equilibrium. D. excess supply, which will cause prices to fall to a new equilibrium. NEED FIGURE
D. excess supply, which will cause prices to fall to a new equilibrium.
127. Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ________ and the equilibrium quantity will __________. A. rise; fall B. rise; rise C. fall; fall D. fall; rise NEED FIGURE
D. fall; rise
133. If supply decreases while demand increases simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________. A. lower; lower B. lower; indeterminate C. indeterminate; higher D. higher; indeterminate
D. higher; indeterminate
132. If both supply and demand decrease simultaneously, the new equilibrium price is ___________ and the new equilibrium quantity is _________________. A. lower; lower B. lower; indeterminate C. indeterminate; higher D. indeterminate; lower
D. indeterminate; lower
145. An outcome is socially optimal if it: A. follows from a market equilibrium. B. follows from collective action. C. leaves no money on the table. D. maximizes total economic surplus.
D. maximizes total economic surplus.
119. Refer to the figure above. If supply were to shift to the left, and demand were to also shift to the left, in the new equilibrium: A. both price and quantity would be lower. B. both price and quantity would be higher. C. price would be higher and quantity would be lower. D. quantity would be lower, but the direction of the price change cannot be determined. NEED FIGURE
D. quantity would be lower, but the direction of the price change cannot be determined.
118. In general, when the supply curve shifts to the left and demand is constant then: A. the market cannot reestablish an equilibrium. B. the equilibrium price will fall. C. the equilibrium quantity will rise. D. the equilibrium price will rise.
D. the equilibrium price will rise.
152. Suppose the local slaughterhouse gives off an unpleasant stench. The price of meat would then be _______ because not all of the _________ are accounted for in the marketplace. A. too high; benefits B. too low; benefits C. too high; costs D. too low; costs
D. too low; costs
157. Which of the following directly follows from the No Cash on the Table Principle? A. In a transaction, the parties will negotiate over prices until neither one earns any surplus. B. For a transaction to occur, the buyer's reservation price must be greater than the seller's reservation price. C. For a transaction to occur, the buyer's reservation price must be less than the seller's reservation price. D. Efficiency requires that the buyer's surplus equal the seller's surplus.
For a transaction to occur, the buyer's reservation price must be greater than the seller's reservation price.
158. According to the equilibrium principle: A. unregulated markets tend to reach equilibrium prices and quantities without government regulation. B. once a market has reached equilibrium, price will not change. C. collective action cannot improve on individual action. D. market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.
market equilibrium exploits all opportunities for individual gain, but may not exploit gains possible through collective action.
99. Refer to the figure above. Suppose that retailers learn that a new Shrek movie will be released next month. That news is likely to cause: A. no immediate change in supply, but a decrease in the quantity supplied. B. no immediate change in supply, since the only effect will involve demand. C. an immediate shift in the supply curve to Supply B in anticipation of increased future prices. D. an immediate shift in the supply curve to Supply A in anticipation of increased future prices. NEED FIGURE
D. an immediate shift in the supply curve to Supply A in anticipation of increased future prices.
31. 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.
D. at any price other than equilibrium, forces in the market move price towards the equilibrium.
34. 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.
D. both demanders and suppliers.
12. 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 an item at higher prices
D. downward; fewer people are willing to buy an item at higher prices
33. 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.
D. either excess supply or excess demand.
40. Refer to the figure above. At a price of $9, the market will experience ______________ in the amount of __________ units. A. excess demand; 5 units B. excess supply; 6 units C. equilibrium; 4 units D. excess supply; 5 units NEED FIGURE
D. excess supply; 5 units
60. Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, government sets the price for prescription drugs. One can conclude that the: A. government has set the price too high. B. government has set the price above the equilibrium price. C. buyers are hoarding prescription drugs. D. government has set the price below the equilibrium price.
D. government has set the price below the equilibrium price.
42. Refer to the figure above. If the price is $4 today, and if there are no other changes in this market, one would expect the price in the future to be: A. $4. B. less than $4. C. greater than $6. D. greater than $4. NEED FIGURE
D. greater than $4.
91. Refer to the figure above. Moving from demand curve D2 to demand curve D1 could be caused by a(n): A. increase in consumers' incomes. B. increase in quantity supplied. C. increase in the price of a substitute. D. increase in the price of a complement. NEED FIGURE
D. increase in the price of a complement.
76. As consumers' incomes increase, the demand for ground beef decreases. Ground beef is called a(n): A. normal good. B. complement good. C. substitute good. D. inferior good.
D. inferior good.
77. As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are: A. normal goods. B. complement goods. C. substitute goods. D. inferior goods.
D. inferior goods.
22. 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
D. more; upward
6. 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.
D. purchasers and sellers.
47. 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.
D. suppliers, dissatisfied with growing inventories, will lower the price.
53. Refer to the figure above. When this market is in equilibrium: A. the price is $30, and the quantity that will be sold is 15. B. the price is $25, and the quantity that will be sold is 20. C. the price is $25, and the quantity that will be sold is 5. D. the price is $35, and the quantity that will be sold is 20. NEED FIGURE
D. the price is $35, and the quantity that will be sold is 20.
66. An increase in the quantity demanded of tea occurs whenever: A. the population of tea drinkers grows. B. the price of coffee rises. C. tea drinkers receive an increase in their incomes. D. the price of the tea falls.
D. the price of the tea falls.
82. For two goods X and Y to be classified as substitutes, it must be the case that: A. X and Y are identical. B. consumers tend to purchase both items. C. when the price of X rises, the demand for Y decreases. D. when the price of X rises, the demand for Y increases.
D. when the price of X rises, the demand for Y increases.
58. Which of the following is NOT a characteristic of governmental rent controls? A. Equitable distribution of apartments. B. Excess demand for apartments. C. Fewer newly built apartment buildings. D. Very low vacancy rates.
A. Equitable distribution of apartments.
95. Which of the following would cause an increase in quantity supplied of wheat? A. The price farmers receive for their wheat rises. B. The price of fertilizer farmers' use in their fields decreases. C. The price firms pay for liability insurance falls. D. New, better technology for farming is introduced.
A. The price farmers receive for their wheat rises.
64. A movement along a demand curve from one price-quantity combination to another is called: A. a change in quantity demanded. B. a shift in the demand curve. C. a change in demand. D. a change in quantity supplied.
A. a change in quantity demanded.
97. Suppose that the technology used to manufacture laptops has improved. The likely result would be: A. an increase in supply of laptops. B. an increase in quantity supplied of laptops. C. a decrease in supply of laptops. D. a decrease in quantity supplied of laptops.
A. an increase in supply of laptops.
1. 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.
A. centralized economy.
72. If the price of computers increases and the demand for monitors decreases as a result, then: A. computers and monitors are complements. B. computers are a normal good and monitors are inferior. C. computers and monitors are substitutes. D. computers are an inferior good and monitors are normal.
A. computers and monitors are complements.
45. 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.
A. consumers will bid the price up.
41. Refer to the figure above. At a price of $3, the market will experience ______________ in the amount of _________ units. A. excess demand; 5 units B. excess supply; 7 units C. equilibrium; 4 units D. excess supply; 3 units NEED FIGURE
A. excess demand; 5 units
7. 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.
A. market for the good.
15. 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.
A. substitution effect of a price change.
68. In the market for coffee, for many consumers: A. tea is a substitute. B. non-dairy creamer is a substitute. C. cola beverages are complements. D. coffee mugs are substitutes.
A. tea is a substitute.
9. "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.
A. the demand curve.
81. Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect: A. the supply of doughnut holes to decrease. B. the supply of doughnuts to decrease. C. the supply of doughnut holes to increase. D. the supply of doughnuts to increase.
A. the supply of doughnut holes to decrease.
39. Refer to the figure above. The equilibrium price and quantity for this market are: A. $8; 6. B. $6; 4. C. $4; 6. D. $2; 8. NEED FIGURE
B. $6; 4.
32. 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 an amount equal to their quantity demanded. C. Excess demand is zero. D. The equilibrium price is stable, i.e., there is no pressure for it to change.
B. All consumers are able to purchase an amount equal to their quantity demanded.
44. Why does your grocery store sell day-old bakery goods but not day-old canned goods? A. Canned goods are priced at the market equilibrium. B. An excess supply of bakery goods will quickly spoil, but excess canned goods will not. C. There is excess demand for canned goods. D. Demand for canned goods is easier to predict.
B. An excess supply of bakery goods will quickly spoil, but excess canned goods will not.
37. Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why? A. Sellers want to take advantage of people who received a year-end bonus. B. Quantity demanded exceeds quantity supplied. C. Too much government regulation in the market. D. The demand curve for fad items is upward-sloping.
B. Quantity demanded exceeds quantity supplied.
56. Refer to the figure above. Now suppose that the government imposes a price ceiling of $40. What is the most likely result? A. Many sellers would go out of business because $40 is above the equilibrium. B. There would be no change in the price. C. The market would reach a new equilibrium at a price of $40. D. An underground, or black, market would emerge where this product would be sold at a price above $40. NEED FIGURE
B. There would be no change in the price.
5. Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role is as: A. a consumer in both of these markets. B. a consumer at the electronics store and as a seller on e-Bay. C. a consumer at the electronics store; the e-Bay transaction did not occur in a market. D. a seller in both of these markets.
B. a consumer at the electronics store and as a seller on e-Bay.
88. Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, in the pasta market one would expect to see: A. an increase in the quantity of pasta demanded. B. an increase in the demand for pasta. C. a decrease in the quantity of pasta demanded. D. a decrease in the demand for pasta.
B. an increase in the demand for pasta.
21. When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Moe's reservation price for a slice of pizza must be: A. less than $1.75. B. at least $1.75 but less than $2. C. exactly $1.75. D. exactly $2.00.
B. at least $1.75 but less than $2.
69. In the market for office workers: A. there are no substitutes because each human is unique. B. computers are complements. C. an increase in wages will increase the number of workers demanded. D. a decrease in wages will shift the demand for workers to the left.
B. computers are complements.
89. 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: A. quantity demanded of high-fiber foods will fall. B. demand for high-fiber foods will decrease. C. supply of high-fiber foods will increase. D. price of high-fiber foods will rise.
B. demand for high-fiber foods will decrease.
86. Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story explaining that the coffee crop has been contaminated with disease-causing bacteria. The following week: A. the demand function remained at D(Monday), but the quantity demanded decreased. B. demand shifted to D(A) because some people decided to stop drinking coffee in light of the health hazard. C. demand shifted to D(B) in anticipation of future price increases. D. there would be no change in either the demand function or the quantity demanded because not enough time had passed for the report's effects to be felt. NEED FIGURE
B. demand shifted to D(A) because some people decided to stop drinking coffee in light of the health hazard.
18. 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.
B. her reservation price was at least $400.
14. 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 just one double cheeseburger for lunch. This is best described as a(n): A. substitution effect. B. income effect. C. buyer's reservation price effect. D. seller's reservation price effect.
B. income effect.
90. Refer to the figure above. Moving from demand curve D1 to demand curve D2 illustrates a(n): A. increase in quantity demanded. B. increase in demand. C. decrease in demand. D. decrease in quantity demanded. NEED FIGURE
B. increase in demand.
74. A decrease in the price of pizza will cause a(n): A. increase in demand. B. increase in quantity demanded. C. decrease in quantity demanded. D. decrease in the number of consumers.
B. increase in quantity demanded.
23. The supply curve illustrates that firms: A. increase the supply of a good when its price rises. B. increase the quantity supplied of a good when its price rises. C. decrease the quantity supplied of a good when input prices fall. D. decrease the quantity supplied to earn higher profits.
B. increase the quantity supplied of a good when its price rises.
94. As the price of cookies increases, firms that produce cookies will: A. increase the supply of cookies. B. increase the quantity supplied of cookies. C. decrease the supply of cookies. D. decrease the quantity supplied of cookies.
B. increase the quantity supplied of cookies.
93. A decrease in the demand for bananas with no concurrent change in the supply of bananas will result in a ________ equilibrium price and a(n) ________ equilibrium quantity. A. higher; lower B. lower; lower C. higher; unchanged D. higher; higher
B. lower; lower
24. As the price of a good rises: A. firms earn larger profits. B. more firms can cover their opportunity costs of producing the good. C. firms find they can raise price by even more. D. government regulation becomes more justified.
B. more firms can cover their opportunity costs of producing the good.
67. If the demand for a good decreases as income decreases, it is a(n): A. complementary good. B. normal good. C. inferior good. D. substitute good.
B. normal good.
71. If the demand for steak increases as income increases, this means that steak is a(n): A. complementary good. B. normal good. C. inferior good. D. substitute good.
B. normal good.
84. Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that: A. peanut butter and jelly are complements. B. peanut butter and jelly are substitutes. C. peanut butter and jelly are normal goods. D. peanut butter and jelly are inferior goods.
B. peanut butter and jelly are substitutes.
38. 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.
B. quantity supplied is greater than quantity demanded.
79. Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C. If the price of train tickets increases: A. the demand for train tickets will increase. B. the demand for rental cars will increase. C. the demand for train tickets will decrease. D. the demand for rental cars will decrease.
B. the demand for rental cars will increase.
78. Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect: A. the demand for gasoline to decrease. B. the demand for sport utility vehicles to decrease. C. the demand for sport utility vehicles to increase. D. the quantity of sport utility vehicles demanded to decrease.
B. the demand for sport utility vehicles to decrease.
80. Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect: A. the supply of doughnuts to decrease. B. the quantity supplied of doughnuts to decrease. C. the supply of doughnut-holes to increase. D. the quantity supplied of doughnut-holes to increase.
B. the quantity supplied of doughnuts to decrease.
29. A seller's reservation price is generally equal to: A. the buyer's reservation price. B. the seller's opportunity cost. C. the seller's marginal benefit. D. the market price.
B. the seller's opportunity cost.
51. 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.
B. the wage for teachers at those schools is lower than the equilibrium wage.
25. Supply curves are generally _______ sloping because _______________. A. downward; more consumers will buy the good if the price falls. B. upward; of the principle of increasing opportunity costs. C. downward; it is less expensive to mass-produce goods. D. upward; of inflation.
B. upward; of the principle of increasing opportunity costs.
26. Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that: A. people don't like to live in your neighborhood anymore. B. when housing prices rose, they started to exceed some of your neighbors' reservation prices. C. the demand curve for housing in your town has shifted to the left while supply remained constant. D. the supply curve for housing in your town has shifted to the right while demand has remained constant.
B. when housing prices rose, they started to exceed some of your neighbors' reservation prices.
61. A regulated maximum price that is above the equilibrium price: A. will lead to black markets. B. will have no effect on the market. C. will lead to excess supply in the market. D. will lead to excess demand in the market.
B. will have no effect on the market.
98. What might cause a supply function to shift to the left today? A. An increase in the product's own price. B. An expectation that the product's price will fall in the future. C. An expectation that the product's price will rise in the future. D. A decrease in the price of one of the inputs to making the product.
C. An expectation that the product's price will rise in the future.
4. Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of those tickets. You scalped, or sold, the third ticket just outside the entrance to the concert for slightly more than the price you had originally paid. Which transaction occurred in a market? A. Only the advance purchase and sale at the University window was a market transaction. B. Only the transaction that occurred the evening of the concert was a market transaction. C. Both transactions, the one at the University ticket window as well as the sale at the concert entrance, occurred in markets. D. Neither the advance sale at the University ticket window nor the sale the night of the concert occurred in markets.
C. Both transactions, the one at the University ticket window as well as the sale at the concert entrance, occurred in markets.
28. Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume that: A. Curly's reservation price is $5.00 or more. B. Curly's reservation price is exactly $4.50. C. Curly's reservation price is greater than $4.50 but no more than $5. D. Curly's reservation price is exactly $5.
C. Curly's reservation price is greater than $4.50 but no more than $5.
19. Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore: A. Gertie should not buy the jeans because they will be of lower quality than she expected. B. Gertie should not buy the jeans because the price is not equal to her reservation price. C. Gertie should buy the jeans because the price is less than her reservation price. D. Gertie should buy the jeans because the price is more than her reservation price.
C. Gertie should buy the jeans because the price is less than her reservation price.
48. 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.
C. It is always a fair and just price.
50. Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers (individuals who re-sell tickets at the event) 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.
C. There is an excess supply of tickets for this concert at the Ticketmaster price.
55. Refer to the figure above. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result? A. They would all make a large profit because $45 is more than the equilibrium price. B. They would all just break even because $45 is their reservation price. C. They would feel pressure to lower their prices because at $45 there would be excess supply. D. They would be forced to lower their prices because at $45 there would be excess demand. NEED FIGURE
C. They would feel pressure to lower their prices because at $45 there would be excess supply.
62. In a market where government has set the maximum price below the equilibrium price, one might expect: A. quantity demanded to equal quantity supplied. B. excess supply. C. a black market to develop as individuals try to take advantage of unexploited opportunities. D. quantity supplied to surpass quantity demanded.
C. a black market to develop as individuals try to take advantage of unexploited opportunities.
87. Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is: A. an increase in buyers' reservation prices for beef. B. a decrease in demand for chicken. C. a decrease in demand for beef. D. a decrease in the quantity demanded of beef.
C. a decrease in demand for beef.
59. Minimum wage laws are an example of: A. mandated equilibrium wages. B. a price ceiling. C. a regulated price. D. comparative advantage for unskilled workers.
C. a regulated price.
73. Whether or not a good can be classified as a complement depends on whether; A. you personally tend to consume the goods together. B. no substitutes exist. C. an increase in demand for one good follows a decrease in the price of the other. D. an increase in demand for one good follows an increase in the price of the other.
C. an increase in demand for one good follows a decrease in the price of the other.
16. When the price of an item increases, buyers tend to purchase less of that item: A. solely because of the substitution effect. B. solely because of the income effect. C. because of both the substitution and the income effects. D. only if the substitution effect and the income effect do not cancel out each other.
C. because of both the substitution and the income effects.
63. According to the textbook, government price controls fail because: A. they are not enforced. B. legislation cannot repeal basic economic motives. C. bureaucrats lack accurate market data. D. firms ignore the restrictions.
C. bureaucrats lack accurate market data.
8. In a market, the demanders are the _______, and the suppliers are the ______. A. bosses; workers B. poor; wealthy C. buyers; sellers D. sellers; buyers
C. buyers; sellers
52. 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.
C. causes the price you pay for gas to increase.
96. As the price of flour (an input into the cookie production process) increases, firms that produce cookies will: A. increase the supply of cookies. B. increase the quantity of cookies supplied. C. decrease the supply of cookies. D. decrease the quantity of cookies supplied.
C. decrease the supply of cookies.
85. Refer to the figure above. Demand for coffee last Monday is shown in bold and labeled D(Monday). On Tuesday, the news featured a story about a storm that wiped out the entire coffee crop in Brazil. On Wednesday: A. the demand function remained at D(Monday), but the quantity demanded increased. B. demand shifted to D(A) in anticipation of future price increases. C. demand shifted to D(B) in anticipation of future price increases. D. there would be no change in either the demand function or the quantity demanded because not enough time had passed for the storm's effects to be felt. NEED FIGURE
C. demand shifted to D(B) in anticipation of future price increases.
46. 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.
C. demanders, to acquire the good, will bid the price higher.
20. One reason for the ________ slope of the demand curve is that as prices fall ________. A. upward; people expect goods to be of lower quality. B. upward; more people purchase the good. C. downward; more people find that the price is less than their reservation price. D. downward; fewer people find that the price equals their reservation price.
C. downward; more people find that the price is less than their reservation price.
83. At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n): A. decrease in the quantity of apartments demanded. B. increase in the supply of apartments. C. increase in the demand for apartments. D. decrease in the quantity of apartments supplied.
C. increase in the demand for apartments.
92. Refer to the figure above. Moving from demand curve D1 to demand curve D2 could be caused by a(n): A. decrease in consumers' incomes. B. increase in quantity supplied. C. increase in the price of a close substitute. D. increase in the price of a complement. NEED FIGURE
C. increase in the price of a close substitute.
35. 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.
C. quantity demanded exceeds quantity supplied.
27. 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.
C. reservation price.
100. Refer to the figure above. If the price of the plastic used to make action figures rises, supply will: A. shift from Current Supply to Supply B. B. not change because a change in raw material prices cannot affect market prices. C. shift from Current Supply to Supply A. D. remain at Current Supply because Demand for Shrek figures is so strong. NEED FIGURE
C. shift from Current Supply to Supply A.
10. The demand curve illustrates the fact that consumers: A. tend to purchase more of a good as its price rises. B. purchase name brand products more frequently than generic products. C. tend to purchase more of a good as its price falls. D. purchase more of a good as their incomes rise.
C. tend to purchase more of a good as its price falls.
49. 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.
C. the economic motives of sellers and buyers will move the market to its equilibrium.
30. A seller's reservation price is generally equal to: A. the buyer's reservation price. B. the seller's average cost. C. the seller's marginal cost. D. the market price.
C. the seller's marginal cost.
36. Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is: A. the quantity demanded. B. the quantity supplied. C. the smaller of the quantity demanded and the quantity supplied. D. the greater of the quantity demanded and the quantity supplied.
C. the smaller of the quantity demanded and the quantity supplied.
13. As coffee becomes more expensive, Joe starts drinking tea, and 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.
C. the substitution effect.
54. Refer to the figure above. At a price of $20: A. the market would be in equilibrium. B. there would be excess supply of approximately 25 units. C. there would be excess demand of approximately 25 units. D. there would be excess demand, but it is impossible to know by how much. NEED FIGURE
C. there would be excess demand of approximately 25 units.
11. 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.
D. It shows how an increase in price leads to an increase in quantity demanded of a good.
57. The tendency of markets to automatically gravitate toward equilibrium is an application of which core principle? A. The Scarcity Principle B. The Cost-Benefit Principle C. The Principle of Comparative Advantage D. The Incentive Principle
D. The Incentive Principle
65. "As the price of personal computers continues to fall, demand increases." This headline is inaccurate because: A. a change in the price of personal computers shifts the demand curve. B. a change in the price of personal computers shifts the supply curve. C. the statement is backwards: increased demand leads to lower prices. D. a falling price for personal computers increases quantity demanded, not demand.
D. a falling price for personal computers increases quantity demanded, not demand.