Macro Economics Chapter 3

If two goods are complements: they are consumed independently. an increase in the price of one will increase the demand for the other. a decrease in the price of one will increase the demand for the other. they are necessarily inferior goods.

a decrease in the price of one will increase the demand for the other.

Economists use the term "demand" to refer to: a particular price-quantity combination on a stable demand curve. the total amount spent on a particular commodity over a fixed time period. an upsloping line on a graph that relates consumer purchases and product price. a schedule of various combinations of market prices and amounts/quantities demanded.

a schedule of various combinations of market prices and amounts/quantities demanded.

Refer to the diagram. A price of $60 in this market will result in: (Pic32) equilibrium. a shortage of 50 units. a surplus of 50 units. a surplus of 100 units.

a surplus of 100 units.

Blu-ray players and Blu-ray discs are: complementary goods. substitute goods. independent goods. inferior goods.

complementary goods.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that: consumer incomes have declined, and consumers now want to buy less of A at each possible price. the price of A has increased and, as a result, consumers want to purchase less of it. consumer preferences have changed in favor of A so that they now want to buy more at each possible price. the price of A has declined and, as a result, consumers want to purchase more of it.

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

There will be a surplus of a product when: price is below the equilibrium level. the supply curve is downward sloping and the demand curve is upward sloping. the demand and supply curves fail to intersect. consumers want to buy less than producers offer for sale.

consumers want to buy less than producers offer for sale.

If X is a normal good, a rise in money income will shift the: supply curve for X to the left. supply curve for X to the right. demand curve for X to the left. demand curve for X to the right.

demand curve for X to the right.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: (Pic43) supply has decreased and equilibrium price has increased. demand has increased and equilibrium price has decreased. demand has decreased and equilibrium price has decreased. demand has increased and equilibrium price has increased.

demand has increased and equilibrium price has decreased.

The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. direct; inverse inverse; direct inverse; inverse direct; direct

direct; inverse

A price floor means that: inflation is severe in this particular market. sellers are artificially restricting supply to raise price. government is imposing a maximum legal price that is typically below the equilibrium price. government is imposing a minimum legal price that is typically above the equilibrium price.

government is imposing a minimum legal price that is typically above the equilibrium price.

Refer to the diagram. A decrease in demand is depicted by a: (Pic21) move from point x to point y. shift from D1 to D2. shift from D2 to D1. move from point y to point x.

shift from D2 to D1.

Refer to the diagram. A decrease in supply is depicted by a: move from point x to point y. shift from S1 to S2. shift from S2 to S1. move from point y to point x.

shift from S2 to S1.

An improvement in production technology will: increase equilibrium price. shift the supply curve to the left. shift the supply curve to the right. shift the demand curve to the left.

shift the supply curve to the right.

If the price of product L increases, the demand curve for close-substitute product J will: shift downward toward the horizontal axis. shift to the left. shift to the right. remain unchanged.

shift to the right.

Refer to the diagram. A price of $20 in this market will result in a: (Pic33) shortage of 50 units. surplus of 50 units. surplus of 100 units. shortage of 100 units.

shortage of 100 units.

A leftward shift of a product supply curve might be caused by: an improvement in the relevant technique of production. a decline in the prices of needed inputs. an increase in consumer incomes. some firms leaving an industry.

some firms leaving an industry.

A market: reflects upsloping demand and downsloping supply curves. entails the exchange of goods, but not services. is an institution that brings together buyers and sellers. always requires face-to-face contact between buyer and seller.

is an institution that brings together buyers and sellers.

Refer to the diagram. A decrease in quantity demanded is depicted by a: (Pic22) move from point x to point y. shift from D1 to D2. shift from D2 to D1. move from point y to point x.

move from point y to point x.

Refer to the diagram. A government-set price ceiling is best illustrated by: (Pic46) price A. quantity E. price C. price B.

price A.

Refer to the diagram. A government-set price floor is best illustrated by: (Pic45) price A. quantity E. price C. price B.

price C.

The demand curve shows the relationship between: money income and quantity demanded. price and production costs. price and quantity demanded. consumer tastes and quantity demanded.

price and quantity demanded.

The law of supply indicates that, other things equal: producers will offer more of a product at high prices than at low prices. the product supply curve is downsloping. consumers will purchase less of a good at high prices than at low prices. producers will offer more of a product at low prices than at high prices.

producers will offer more of a product at high prices than at low prices.

Allocative efficiency is concerned with: producing the combination of goods most desired by society. achieving the full employment of all available resources. producing every good with the least-cost combination of inputs. reducing the concavity of the production possibilities curve.

producing the combination of goods most desired by society.

Other things equal, if the price of a key resource used to produce product X falls, the: product supply curve of X will shift to the right. product demand curve of X will shift to the right. product supply curve of X will shift to the left. product supply curve of X will not shift.

product supply curve of X will shift to the right.

An effective ceiling price will: induce new firms to enter the industry. result in a product surplus. result in a product shortage. clear the market.

result in a product shortage.

An effective price floor will: force some firms in this industry to go out of business. result in a product surplus. result in a product shortage. clear the market.

result in a product surplus.

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes: an inferior good. the rationing function of prices. the substitution effect. the income effect.

the substitution effect.

Productive efficiency refers to: the use of the least-cost method of production. the production of the product mix most wanted by society. the full employment of all available resources. production at some point inside of the production possibilities curve.

the use of the least-cost method of production.

At the equilibrium price: quantity supplied may exceed quantity demanded or vice versa. there are no pressures on price to either rise or fall. there are forces that cause price to rise. there are forces that cause price to fall.

there are no pressures on price to either rise or fall.

Refer to the diagram. The equilibrium price and quantity in this market will be: (Pic29) $1.00 and 200. $1.60 and 130. $0.50 and 130. $1.60 and 290.

$1.00 and 200.

Refer to the diagram. If this is a competitive market, price and quantity will move toward: (Pic35) $60 and 100, respectively. $60 and 200, respectively. $40 and 150, respectively. $20 and 150, respectively.

$40 and 150, respectively.

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: (Pic34) $30. $60. $40. $20.

$60.

Refer to the diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: (Pic42) 0F and 0C, respectively. 0G and 0B, respectively. 0F and 0A, respectively. 0E and 0B, respectively.

0F and 0C, respectively.

If the demand curve for product B shifts to the right as the price of product A declines, then: both A and B are inferior goods. A is a superior good and B is an inferior good. A is an inferior good and B is a superior good. A and B are complementary goods.

A and B are complementary goods.

Which of the following will cause the demand curve for product A to shift to the left? Population growth that causes an expansion in the number of persons consuming A. An increase in money income if A is a normal good. A decrease in the price of complementary product C. An increase in money income if A is an inferior good.

An increase in money income if A is an inferior good.

Other things equal, which of the following might shift the demand curve for gasoline to the left? The discovery of vast new oil reserves in Montana. The development of a low-cost electric automobile. An increase in the price of train and air transportation. A large decline in the price of automobiles.

The development of a low-cost electric automobile.

Which of the following would most likely increase the demand for gasoline? The expectation by consumers that gasoline prices will be higher in the future. The expectation by consumers that gasoline prices will be lower in the future. A widespread shift in car ownership from SUVs to hybrid sedans. A decrease in the price of public transportation.

The expectation by consumers that gasoline prices will be higher in the future.

Which of the following is most likely to be an inferior good? Fur coats. Ocean cruises. Used clothing. Steak.

Used clothing.

A surplus of a product will arise when price is: above equilibrium, with the result that quantity demanded exceeds quantity supplied. above equilibrium, with the result that quantity supplied exceeds quantity demanded. below equilibrium, with the result that quantity demanded exceeds quantity supplied. below equilibrium, with the result that quantity supplied exceeds quantity demanded.

above equilibrium, with the result that quantity supplied exceeds quantity demanded.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: (Pic44) the equilibrium position has shifted from M to K. an increase in demand has been more than offset by an increase in supply. the new equilibrium price and quantity are both greater than originally. point M shows the new equilibrium position.

an increase in demand has been more than offset by an increase in supply.

An economist for a bicycle company predicts that, An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that: there are many goods that are substitutes for bicycles. there are many goods that are complementary to bicycles. there are few goods that are substitutes for bicycles. bicycles are normal goods.

bicycles are normal goods.

A market is in equilibrium: provided there is no surplus of the product. at all prices above that shown by the intersection of the supply and demand curves. if the amount producers want to sell is equal to the amount consumers want to buy. whenever the demand curve is downsloping and the supply curve is upsloping.

if the amount producers want to sell is equal to the amount consumers want to buy.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the: cost effect. inflationary effect. income effect. substitution effect.

income effect.

A government subsidy to the producers of a product: reduces product supply. increases product supply. reduces product demand. increases product demand.

increases product supply.

Tennis rackets and ballpoint pens are: substitute goods. complementary goods. inferior goods. independent goods.

independent goods.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: inferior goods. normal goods. complementary goods. substitute goods.

inferior goods.

Price floors and ceiling prices: both cause shortages. both cause surpluses. cause the supply and demand curves to shift until equilibrium is established. interfere with the rationing function of prices.

interfere with the rationing function of prices.

In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is: the price of the product itself. consumer income. the prices of related goods. consumer tastes.

the price of the product itself.

If there is a shortage of product X, and the price is free to change: fewer resources will be allocated to the production of this good. the price of the product will rise. the price of the product will decline. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will rise.

At the point where the demand and supply curves for a product intersect: the selling price and the buying price need not be equal. the market may, or may not, be in equilibrium. either a shortage or a surplus of the product might exist, depending on the degree of competition. the quantity that consumers want to purchase and the amount producers choose to sell are the same.

the quantity that consumers want to purchase and the amount producers choose to sell are the same.