chapter 3 practice questions

Firms are willing and able to sell 100 guitars per day at a price of $250 per guitar. What price will firms require to sell 100 guitars per day if there is a tax of $15 per guitar?

$265

The market price of a good is $10 and 40 units of the good sell at this price. Its demand curve intersects the vertical axis at a price of $12 and has a constant slope. What is the approximate value of consumer surplus in this market?

$40

Which of the following would cause the demand for hot dog buns to increase?

a fall in the price of hot dogs

A decrease in the price of one substitute good causes:

a leftward shift in the demand curve for the other substitute good

Which of the following choices contains only factors that cause the supply curve to shift to the right?

a rise in technology, a fall in the costs of production, a fall in taxes on output

Recall the discussion about the demand for oil in your textbook. Which of the following correctly explains why the demand curve for oil is negatively sloped? As the price of oil rises:

consumers increasingly use oil only for those purposes without good substitutes

A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________.

decrease; decrease

Suppose that consumers begin to believe that the price of housing will be lower next period. What will happen in the market for housing as a result of these expectations?

demand for housing will begin to fall now as people postpone their purchase until prices are lower

(T or F) A tax of $4 shifts the supply curve down and to the right by $4.

false

(T or F) Demand for a good or service increases when the consumer's income rises, regardless of whether the good is a normal good or inferior

false

(T or F) If the price of corn rises, all else the same, we expect the supply of soybeans to increase.

false

(T or F) Price of raw materials is a demand shifter

false

(T or F) the supply curve tells us the minimum quantity that suppliers would be willing to sell at different prices

false

(T or F) Total consumer surplus is measured by the area beneath the demand curve

fasle

If the price of shotguns ______, the demand for shotgun shells will _______.

increase; decrease

If romaine lettuce and iceberg lettuce are substitutes, a(n) _____ in the price of romaine lettuce will ______ the demand for iceberg lettuce.

increase; increase

A farmer can grow soy or sorghum. If the price of soy increases, the opportunity cost of growing sorghum ______, shifting the supply curve of sorghum ______.

increase; up and to the left

A good is considered normal if demand for it ______ when income ______.

increases; increases

New research indicates that running marathons is actually bad for the heart (it increases inflammatory markers associated with heart attacks). This news will:

lead to a decrease in the demand for running shoes

Which of the following explains why the demand for oil has a negative slope

oil is not equally valuable in all of its uses

The demand curve for oil slopes downward because:

oil will only be used in its higher- valued uses when the price of oil is higher

if producers form expectations that copper prices will be higher in the future, then this will shift the:

supply curve of copper to the left

In the early 1980s, movie rentals averaged $5 a night; by the early 1990s that average was $1 per night. This is an example of a supply curve shifter based on:

the entry of new suppliers into the market

Peoples' expectation of the price of gasoline going up tomorrow may increase the demand for gasoline today. If so, what does this imply about the relationship between gasoline tomorrow and gasoline today?

they are substitutes

(T or F) A technological innovation in the production of electronic goods causes the supply for electronic goods to increase.

true

(T or F) An increase in income increases the demand for normal goods

true

(T or F) As the price of a good rises, it becomes profitable to sell the higher- cost good

true

(T or F) Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction

true

If the government decided to heavily regulate small farmers who grow organic and free-range food, the supply of that food:

would decrease because the regulations are like a tax on the food; they make it more expensive to produce.