Macro quiz 3

Which of the following statements is true?a. If a surplus equals 200 units at $2 above equilibrium price, then a shortage must equal 200 units at $2 below equilibrium price. b. Shortages create price ceilings. c. Surpluses create price floors. d. bandc e. none of the above

E

Labor is a resource that is necessary to produce many goods. "If the price of labor falls," says the economist, "the prices of goods will soon follow." How does this work?

If the price of labor falls, the supply of goods rises, and the prices of those goods fall.

Suppose the government imposes a price ceiling on a good above its equilibrium price. Which of the following is a likely result?

No change will occur in the market.

At a price of $15, Marta buys 3 CD's per month. When the price increases to $20, Marta buys 2 CD's per month. Leah says that Marta's demand for CD's has decreased. Is Leah correct?

No, Leah is incorrect. Marta's quantity demanded has decreased, but her demand has stayed the same.

Jerry has $50,000 in his savings account and the average new car price is $23,000. Will Jerry buy a new car?

Not necessarily. Jerry has the ability to buy a new car, but we don't know if he also has the willingness to buy a new car.

Which of the following statements best represents the law of demand?

Price and quantity demanded are inversely related, ceteris paribus.

Which of the following statements is true?

Price ceilings set below the equilibrium price cause shortages.

__________ is the number of units that individuals are __________ to buy at a particular price during some time period.

Quantity demanded; willing and able

An economist says, "Technological advances have the power to lower the prices of many of the goods we buy." Here is how this works:

Technological advances lead to greater supply, which leads to lower prices.

Which of the following is a false statement?

The law of marginal utility states that for a given time period, the marginal utility or satisfaction gained by consuming equal successive units of a good will increase as the amount consumed increases.

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount, what can we say about the resulting changes in price and quantity?

The price will stay the same, but the quantity will decrease.

What condition is necessary before ticket scalping is possible?

The ticket must have originally been sold at a price less than equilibrium price.

If computers and software are complements, then

a fall in the price of computers will increase the demand for software and, ceteris paribus, the price of software will rise.

In the supply-and-demand diagram of the market for peanut butter, the equilibrium point has moved down and to the right. What could have caused this?

a fall in the price of peanuts

A rightward shift in the demand curve for tennis balls could be caused by

a fall in the price of tennis rackets.

If an increase in income results in an increase in the demand for chicken, then chicken is

a normal good.

An advance in technology causes

a rightward shift in the supply curve.

In the supply-and-demand diagram of the market for peanut butter, the equilibrium point has moved up and to the right. What could have caused this?

a shift in preferences toward peanut butter

At a price below equilibrium price, there is

a shortage.

At a price above equilibrium price, there is

a surplus.

One of the effects of a price floor (above equilibrium price) is

a surplus.

A(n) _______________ good is one in which as income rises or falls, there is no change in the demand for the good.

neutral

As Jamal's income rises, his demand for video rentals does not change. It follows that, for Jamal, video rentals are a(n)

neutral good.

On a supply-and-demand diagram, quantity demanded equals quantity supplied

only at the single equilibrium price.

One major reason for the law of demand is that

people substitute relatively lower-priced goods for relatively higher-priced goods.

Oil producers expect that oil prices next year will be lower than oil prices this year. As a result, oil producers are most likely to

place more oil on the market this year, thus shifting the present supply curve of oil rightward.

A __________ is a government-mandated maximum price __________ which legal trades cannot be made.

price ceiling; above

An "increase in the quantity demanded" means that

price has declined and consumers therefore want to purchase more of the good.

A demand schedule is a numerical tabulation of

prices and quantities demanded.

If the demand curve for a good shifts leftward,

quantity demanded is less at each price.

If the supply of and demand for a product both decrease, then equilibrium

quantity must decline, but equilibrium price may either rise, fall, or remain unchanged.

A change in price will lead to a change in __________ and to a change in __________, while a change in preferences will lead to a change in __________ and a change in the prices of resources will lead to a change in __________.

quantity supplied; quantity demanded; demand; supply

An effective price ceiling will

result in a shortage.

An effective price floor on rice will

result in a surplus of rice.

An effective price floor will

result in a surplus.

If the demand for a good increases by more than the supply of the good increases, then equilibrium price will __________ and equilibrium quantity will __________.

rise; rise

If the demand for a good rises by more than the supply of the good falls, then equilibrium price will __________ and equilibrium quantity will __________.

rise; rise

If demand rises by a lesser amount than supply falls, then equilibrium price __________ and equilibrium quantity __________.

rises; falls

If good A is a normal good, an increase in income will

shift the demand curve for good A rightward.

If people begin to favor romance novels to a greater degree than previously, the demand curve for romance novels

shifts rightward.

On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve is less than the horizontal distance to the demand curve. There is a __________ at that price and we are clearly __________ the equilibrium price.

shortage; below

At a price for which quantity demanded exceeds quantity supplied, a __________ is experienced, which pushes the price __________ toward its equilibrium value.

shortage; upward

As the price of good A rises, the demand for good B rises. Therefore, goods A and B are

substitutes.

One reads the following in a newspaper: "Today the president and Congress agreed to impose new restrictive quotas on Japanese cars coming into the country." As a result, an economist would predict that the

supply of cars in the country will fall and the (average) price of cars will rise.

The government imposes a $2.50 per-unit tax on the production of good X. As a result the

supply of good X falls and the price of good X rises.

On a supply-and-demand diagram, consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve. There is a __________ at that price and we are clearly __________ the equilibrium price.

surplus; above

Jack is trying to sell his house. At the currently listed price the house has been up for sale for a year. We can be fairly sure that

the currently listed price is above the equilibrium price.

An "increase in demand" means that

the demand curve has shifted to the right.

An economic concept that explains why Disneyland charges less for the second day of admission than for the first day is

the law of diminishing marginal utility

Tickets to the Super Bowl game are generally sold out well in advance of game day. This implies that

the original ticket price is set below equilibrium.

In moving along a demand curve, which of the following is NOT held constant?

the price of the good for which the demand curve is relevant

Resource X is necessary to the production of good Y. If the price of resource X rises,

the supply curve of Y shifts leftward.

Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this,

the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price.

If the workers of a firm successfully negotiate an increase in wages,

the supply curve of the product the firm produces shifts leftward.

One reads in the newspaper: "Today the president and Congress stiffened the requirements that child care providers must meet before they can offer their services for sale." As a result, an economist would predict that

the supply of child care services will decrease, thus raising the price of child care services.

If the current market price is below equilibrium

there is a shortage of the product.

"As the price of apples goes up, the demand for apples goes down." The author of this statement

uses the word "demand" when he should use the words "quantity demanded."

On a supply-and-demand diagram, equilibrium is found

where the demand and supply curves intersect.

Which of the following will not shift a supply curve?

a change in the good's price

If the price of good X is $100 and the price of good Y is $20, it follows that the relative price of one unit of good Y is

0.20 unit of X.

Which of the following statements is false?

A vertical supply curve represents a direct relationship between price and quantity supplied.

One point on a market supply curve represents $4 and 100 units quantity supplied. If there are three suppliers, and at a price of $4 one of the suppliers supplies 23 units, then which of the following combinations of price and quantity supplied might hold for the other two suppliers?

At $4, quantity supplied could be 40 units for one supplier and 37 for the other.

An increase in the price of good B caused an increase in the demand for good C. This indicates that

B and C are substitutes.

In year 1 the price of good X is $10 and 100 units are bought and sold. In year 2 the price of good X is $13 and 230 units are bought and sold. What can explain this?a. The supply of good X was higher in year 2 than in year 1 and the demand for good X was the same in year 2 as in year 1. b. The demand for good X was higher in year 2 than in year 1 and the supply of good X was the same in year 2 as in year 1. c. Both the demand for, and supply of, good X were higher in year 2 than year 1. d. b or c e. a,b, or c

D

The law of supply does not hold when a. there is no time to produce more units of the good. b. the good cannot be produced over any period of time. c. government imposes price controls. d. bothaandb e. none of the above

D

Which of the following pairs of goods would be most likely to be complements?

DVD's and DVD players.

The price of X was $10 in year 1 and $14 in year 2. Which of the following could be the correct reason for the rise in price? a. The demand for X was higher in year 2 than in year 1, ceteris paribus. b. The supply of X was lower in year 2 than in year 1, ceteris paribus. c. The demand was higher, and the supply was lower, in year 2 than in year 1. d. aandb e. a,b,andc

E

There are two goods in the economy, apples and bread. The relative price of apples has increased. This could be due to a. an increase in the absolute price of apples, ceteris paribus. b. a decrease in the absolute price of bread, ceteris paribus. c. a decrease in the absolute price of apples, ceteris paribus. d. an increase in the absolute price of bread, ceteris paribus. e. aandb

E

Which of the following illustrates the law of demand? a. Jeff buys more pens at $1 per pen than at $2 per pen, ceteris paribus. b. Sara buys more ice cream at $2 per half-gallon than at $1 per half gallon, ceteris paribus. c. Chris buys fewer trousers at $30 per pair than at $25 per pair, ceteris paribus. d. a,b,andc e. a and c

E

Which of the following is descriptive of the law of diminishing marginal utility?a. The third hamburger tastes better than the first hamburger. b. The third hamburger is priced higher than the first hamburger. c. As price falls, quantity demanded rises, ceteris paribus. d. Things get more expensive as costs rise. e. none of the above

E

Tobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, Congress repeals the tobacco firms' subsidies. Which of the following scenarios would likely occur?

The tobacco firms' supply curve would shift leftward, since it would now cost more to produce each level of output.

Which of the following is true about the relationship between price and quantity supplied?

There is usually a direct relationship.

Which of the following statements represents a correct and sequentially accurate economic explanation?

X and Y are substitutes. The price of X falls, the quantity demanded of X rises, and the demand for Y falls.

Suppose the government establishes a price floor on a good above its equilibrium price. It can be said that at the price floor,

although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire.

Which of the following would not result from a price ceiling (below equilibrium price)?

an increase in supply

Which set of changes will raise demand?

an increase in the price of a substitute, a decrease in the price of a complement, and an increase in expected (future) price

A vertical supply curve represents:

an independent relationship between price and quantity supplied.

If Max's demand for hot dogs falls as his income rises, then hot dogs are

an inferior good.

Quantity demanded is the amount of a good that individuals __________ to buy at a particular price during some time period.

are willing and able

A price floor is a government-mandated

minimum price below which legal trades cannot be made.

Equilibrium price and quantity are established by

both demand and supply.

Which of the following pairs of goods would be most likely to be substitutes?

butter and margarine

Economists state that the __________ utility a person receives from a unit of a good, the __________ price he or she is willing to pay for it. This statement is based on the law of __________.

more, higher, diminishing marginal utility

The rationing function of prices most nearly refers to the

capacity of a competitive market to equate the quantity demanded and the quantity supplied of a good.

Price ceilings and price floors

cause shortages and surpluses, respectively.

Buyers prefer lower prices to higher prices

ceteris paribus.

As the price of good X rises, the demand for good Y falls. Therefore, goods X and Y are

complements.

An increase in the number of sellers will, ceteris paribus

decrease equilibrium price and increase equilibrium quantity.

If potential buyers of good X expect the price of good X will soon fall, then the current

demand for good X will fall.

The law of supply states that price and quantity supplied are

directly related, ceteris paribus.

Which of the following statements is false?a. Even at equilibrium in a market, scarcity exists. b. If there is a shortage of 100 units at a price of $2 per unit, the shortage will be greater than 100 units at a price of $1 per unit. c. If there is a surplus of 30 units at a price of $3, the surplus will be less than 30 units (or even nonexistent) at a price of $2. d. If there is a surplus, suppliers will not be able to sell all they had hoped to sell at a particular price. e. none of the above

e

If the demand for a good falls by less than the supply of the good rises, then equilibrium price will __________ and equilibrium quantity will __________.

fall; rise

If demand falls by a greater amount than supply falls, then equilibrium price __________ and equilibrium quantity __________.

falls; falls

The fundamental reason why most supply curves are upward sloping is that

higher production raises the opportunity costs of production and so price must rise to induce more output.

An increase in the expected price of corn would likely

increase the demand but decrease the supply of corn.

Given that frozen yogurt and ice cream are substitutes, a shift in preferences in favor of yogurt would be predicted to do all of the following EXCEPT

increase the supply of ice cream.

The law of demand states that price and quantity demanded are

inversely related, ceteris paribus.

A market is said to be in disequilibrium if

it exhibits either a surplus or a shortage.

A decrease in the number of buyers in an area will result in a

leftward shift in the demand curve.

A price ceiling is a government-mandated

maximum price above which legal trades cannot be made.