Chapter 3 MacroE

Suppose that the price of doughnuts decreases. Given 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. A reduction in the price of doughnuts will lead to fewer doughnuts supplied. Since doughnut holes are produced at the same time as doughnuts, there will be fewer doughnut holes supplied at every price.

Which of the following is NOT a characteristic of rent controls? A. Greater availability of apartments B. Excess demand for apartments C. Fewer newly built apartment buildings D. Lower expenditures on maintenance

A. Rent controls keep prices below the equilibrium price, leading to a decrease in the quantity supplied.

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. Thus, we can infer that Moe's reservation price for a slice of pizza is: A. less than $1.75. B. at least $1.75 but less than $2. C. exactly $1.75. D. exactly $2.00.

B. A buyer will purchase an item if, and only if, its price is less than or equal to the buyer's reservation price. Since Moe buys a slice of pizza for $1.75, his reservation price must be at least $1.75, and since he does not buy a slice of pizza for $2.00, his reservation price must be less than $2.00.

As the price of cookies 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.

B. An increase in price causes a movement along the supply curve (up and to the right).

The situation described in the book as "smart for one, dumb for all" occurs when: A. individuals act rationally, so there are no unexploited opportunities for society as a whole. B. individuals act rationally, but there are still unexploited opportunities for society as a whole. C. individuals make better decisions when they are alone than when they are part of a group. D. individuals make better decisions when they are part of a group than when they are alone.

B. Even when individuals act rationally, they might leave unexploited opportunities to benefit society as a whole.

Which of the following is NOT a characteristic of a market in equilibrium? A. There is neither excess supply nor excess demand. B. Neither buyers nor sellers want the price to change. C. Sellers can sell as many units as they want at the equilibrium price. D. Buyers can buy as many units as they want at the equilibrium price.

B. Even when the market is in equilibrium, sellers would be pleased to receive a higher price and buyers would be happy to pay a lower price.

If supply increases, then: A. demand will increase. B. the quantity demanded will increase. C. the quantity demanded will decrease. D. price will increase.

B. If supply increases, then the equilibrium price will decrease, causing the quantity demanded to increase.

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 rise. D. decrease the supply of a good when its price rises.

B. The supple curve is upward sloping, reflecting the fact that as price rises, so does the quantity supplied.

Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity of T-shirts decreases. This is best explained by: A. an increase in the demand for T-shirts. B. a decrease in the supply of T-shirts. C. an increase in the supply of T-shirts. D. a decrease in the demand for T-shirts.

B. When supply decreases, the equilibrium price will rise, and the equilibrium quantity will fall.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is: A. at least $5.00. B. $4.50. C. greater than $4.50 but no more than $5.00. D. $5.00.

C. Curly did not want to sell hot dogs at $4.50, so his reservation price must be more than $4.50, but since he is willing to sell for $5.00, his reservation price cannot be more than $5.00.

Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is: Multiple Choice 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. News that eating beef can cause disease will cause the demand for beef to fall.

When the demand curve shifts to the right and supply doesn't change: A. quantity demanded will rise. B. equilibrium price will fall. C. equilibrium quantity will rise. D. supply will rise.

C. When the demand curve shifts to the right (reflecting an increase in demand), both the equilibrium price and quantity will rise.

"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 of personal computers increases the quantity demanded, not demand.

D. A change in price leads to a change in quantity demanded, which is represented by movement along a demand curve; a change in demand is a shift in the entire curve.

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n): A. normal good. B. complementary good. C. substitute good. D. inferior good.

D. An inferior good is a good for which an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand.

To understand how the price of a good is determined in a free market, one must account for the desires of: A. buyers. B. sellers. C. governmental agencies. D. buyers and sellers.

D. Buyers and sellers interact to determine the market price.