Principles of Macroeconomics: Chapter 3 Study Guide
The situation described in the book as "Smart for One, Dumb for All" occurs when
individuals, when acting rationally, fail to take advantage of all opportunities for social benefit
If price is above the equilibrium value, then
producers find their inventories growing and will start to cut price
If both supply and demand increase simultaneously, the new equilibrium price is ___ and the new equilibrium quantity is ___
indeterminate; higher
If both supply and demand decrease simultaneously, the new equilibrium price is ___ and the new equilibrium quantity is ___
indeterminate; lower
Which of the following is NOT a characteristic of a market in equilibrium?
All consumers are able to purchase as much as they wish
Which of the following directly follows from the No Cash on the Table Principle?
For a transaction to occur, the buyer's reservation price must be greater than the seller's reservation price.
Which of the following is NOT true of a demand curve?
It shows how an increase in price leads to an increase in quantity demanded of a good.
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
Lower; lower
A good example of central planning at work in the USA would be
New York City's rent control
Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?
No single person's reservation price to clean the park makes it worth cleaning it
Assume the demand for sugar decreases while the supply of sugar increases. Which of the following outcomes is certain to occur?
The equilibrium price of sugar will fall
Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers were selling tickets int eh same seating area as your for $25. What is probably true?
There is an excess supply of tickets for this concert at the Ticketmaster price.
In a market where government has set the price below the equilibrium price, one might expect
a black market to develop as individuals try to take advantage of unexploited opportunities.
A movement along a demand curve from one price-quantity combination to another is called
a change in quantity demanded
Suppose that both the equilibrium price and quantity of ketchup fall. The most consistent explanation for these observations is
a decrease in demand for ketchup with no change in supply
One observes that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?
a decrease in demand with supply constant
Suppose that the equilibrium price of pickles falls while the equilibrium quantity falls. The most consistent explanation for these observations is
a decrease in the supply of French fries with no change in demand
Minimum wage laws are an example of
a regulated price
The No Cash on the Table Principle asserts that
an equilibrium, all opportunities have been exploited
What might cause a supply function to shift to the left today?
an expectation that the product's price will rise in the future
When a market is not in equilibrium
the economic motives of sellers and buyers will move the market to its equilibrium
The technology used to manufacture Personal Computers (PCs) has improved. The likely result would be
an increase in supply of PCs
What might cause a demand function to shift to the right?
an increase in the price of a substitute
An increase in the demand for GM automobiles results in
an increase in the quantity supplied of GM automobiles
One observes that the equilibrium price of a DVD player increases and the equilibrium quantity increases
and increase in demand with supply constant
Efficiency is an important goal in economics because it
assures a higher level of output
A market comprised of a downward sloping demand curve that intersects an upward sloping supply curve is said to be stable because
at any price other than equilibrium, forces in the market move price towards the equilibrium.
When two people agree to a price in negotiation, we can assume that
both parties will benefit
The equilibrium price and quality of any good or service is established by
both suppliers and demanders
At the beginning of the fall semester, college towns experience large increases in their population, causing a(n)
increase in the demand for apartments
Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas
causes the price you pay for gas to increase
In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories. Therefore, Cuba is an example of a
centralized economy
IN the market for office workers
computers and desks are complements
If the price of computers increases and the demand for monitors decreases, then
computers and monitors are complements
When the price of a good is below its equilibrium value
consumers will bid the price up
As the price of flour (an input into the cookie production process) increases, firms that produce cookies will
decrease the supply of cookies
When supply of a good decreases, consumers respond by
decreasing their quantity demanded
One observes that the equilibrium pried of apples falls and the equilibrium quantity increase. Which of the following best fits the observed data?
demand constant and an increase in supply
Suppose one could rent car or take the train to got to Chicago from Kalamazoo. If the price of train ticket increase
demand for rental cars will increase
In a free market, if the price of a good is below the equilibrium price, then
demanders, to acquire the good, will bid the price higher.
A demand curve is ___ sloping because ___
downward; fewer people are willing to buy the item at a higher price.
A market in disequilibrium would feature
either excess supply or excess demand
In general, when the demand curve shifts tot the right and supply remains constant then
equilibrium quantity will rise
"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because
falling prices for personal computers increases quantity demanded, not demand.
As the price of cookies increases, firms that produce cookies will
increase the quantity supplied of cookies
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
government has set the price below the equilibrium price
Shelly purchases a leather purse for $400. One can infer that
her reservation price was at least $400
If supply decreases while demand increases simultaneously, the new equilibrium price is ___ and the the new equilibrium quantity is ___
higher; indeterminate
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 Cheeseburgers has increased from $2.50 to $2.99. You decide to have two single cheeseburgers for lunch. This is best described as a(n)
income effect
If pizzas are a normal good, then decrease int eh price of pizza will cause a(n)
increase in quantity demanded
As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are a(n)
inferior good
As consumers' incomes increase, the demand for ground beef decreases. Ground beef if called a(n)
inferior good
Which of the following is not true of an equilibrium price?
it is always a fair and just price
According to the text, government price controls fail because
legislation can not repeal basic economic motives.
When the equilibrium quantity maximizes total economic surplus, it follows that
marginal cost = marginal benefit
According to the equilibrium principle
market equilibrium exploits all opportunities for individuals for individual gain, but may not exploit gains possible through collective action.
Buyers and sellers of a particular good comprise the
market of a good
An outcome is socially optimal if it
maximizes total economic surplus
The buyer's reservation price of a particular good or service is the
maximum amount one would be willing to pay for it
Sellers tend to offer ___ for sale as price increases, and so the supply curve is ___ sloping.
more; upward
If the demand for steak increases as income increases, this means that steak is a(n)
normal good
If the demand or a good decreases as income decreases, it is a(n)
normal good
If the demand for Personal Computers (PC) shifts to the right (up) as consumers' incomes rise, PC's are
normal goods
Suppose one observes that when the price of peanut butter increase, the demand for jelly increase. One must conclude that
peanut butter and jelly are substitutes
If market is in equilibrium and demand increases while supply decreases, the change in the equilibrium price is ___ and the change in the equilibrium quantity will
positive; indeterminate
In order to understand how the price of a good is determined int eh free market, one must account for the desires of
purchasers and sellers
A shortage occurs when
quantity demanded exceeds quantity supplied.
If the market for Sport Utility Vehicles has excess supply, then one can say that
quantity supplied is greater than quantity demanded.
Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her
reservation price
The quantity of Revlon nail polish demand by Jen decreased after the price of Revlon nail polish increased. Jen decided to find a cheaper brand of nail polish. This is called
substitution effect of a price change
In a free market, if the price of a good is above the equilibrium price, then
suppliers, dissatisfied with growing inventories, will lower the price.
In the market for coffee, for some consumers
tea is a substitute
"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying
the demand curve
Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would expect
the demand for SUVs to decrease
Assume the demand for coffee increase while the supply decreases. Which of the following outcomes is certain to occur?
the equilibrium price of coffee will rise
In general, when the supply curve shits to the left and demand is constant then
the equilibrium price will rise
Assume both the demand and the supply of bagels increase. Which of the following outcomes is certain to occur?
the equilibrium quantity of bagels will rise
Assume both the demand and supply of beef decrease. Which of the following outcomes is certain to occur?
the equilibrium quantity of beef will fall
The entire group of buyers and sellers of a particular good or service makes up
the market
If, in a particular market, all unexploited opportunities have been realized, one can conclude that
the market is in equilibrium
Which of the following would cause an increase in quantity supplied of wheat?
the price farmers receive for their wheat rises
An increase in the quantity demanded of tea occurs whenever
the price of the tea falls
Which is the following is NOT a determinant of demand for gasoline
the quantity of gasoline supplied
Suppose the price of doughnuts decreases and doughnut holes are a by-product of producing doughnuts. One would expect
the quantity supplied of doughnuts to decrease.
Efficiency occurs when
the socially optimal quantity of goods and services is being produced
As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demand for coffee decreases. This is called
the substitution effect
You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Bad on this observation, you suspect that
the wage for teachers at those schools is lower than the equilibrium wage.
Suppose that the production of oranges reduces global warming by .1%. The equilibrium price of oranges is ___ because not all of the ___ are counted for in the marketplace.
too low; benefits
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
tow low; costs
For two good, X and Y, to be classified as substitutes, it must be the case that
when the price of X rises, the demand for Y increases
A regulated maximum price that is above the equilibrium price
will lead to excess supply in the market
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
will make a trade