ECON 2010 Ch.4
In what year was OPEC, the Organization of the Petroleum Exporting Countries, formed?
1960.
Which of the following causes a change in demand?
A change in the personal income of buyers
Which statement about Vernon Smith's laboratory experiments is correct?
The participants were sorted into two groups.
What does a decrease in supply result in?
a lower equilibrium quantity
surplus
a situation in which the quantity supplied is greater than the quantity demanded
The equilibrium quantity is equal to:
both quantity demanded and quantity supplied at the equilibrium price.
Markets find equilibrium, and maximize gains from trade, when:
buyers and sellers act in their own self interest.
If the demand for oil increased, the:
demand curve would shift to the right.
Nobel laureate Vernon Smith, one of the founders of _______, first tested the supply and demand model in 1956.
experimental economics
Jan is a buyer in Vernon Smith's classroom experiment of the market model. Which does she know?
her own willingness to buy
When there is a surplus in a market:
sellers have an incentive to reduce their prices so they can outcompete other sellers and sell more.
The equilibrium price is the only ________ price.
stable
A free market maximizes:
the sum of producer and consumer surplus.
When the free market maximizes the total gains from trade, there are no:
unexploited gains from trade or wasted resources.
At the equilibrium price for oil, only the _______ buyers buy oil and only the _______ sellers sell oil.
high-value; low-cost
Economists believe that in free markets, potential gains from trade:
will eventually be found by buyers and sellers in a market.
An increase in demand causes a:
temporary shortage at the old equilibrium price and a higher new equilibrium price and quantity.
equilibrium quantity
the quantity at which the quantity demanded is equal to the quantity supplied
When the price at which sellers are willing to sell another unit exceeds the price at which buyers are willing to buy another unit, there must be _______, and the quantity is too _______.
waste; high
In Vernon Smith's supply and demand lab experiment:
Smith knew the true demand and supply curves, but the subjects did not.
Lower production costs result in:
a lower equilibrium price.
In a market equilibrium, what differentiates suppliers who actually sell a good from suppliers who do NOT sell a good?
The suppliers who sell have lower costs than the sellers who don't sell.
An early frost in the vineyards of Napa Valley would cause a(n):
decrease in the supply of wine, increasing price.
As consumer income decreases, the equilibrium price of a normal good _____ and the equilibrium quantity of a normal good decreases.
decreases
As more hairstylists move to New York, the equilibrium price of haircuts in New York _____ and the equilibrium quantity of haircuts in New York increases.
decreases
Jean is a seller in Vernon Smith's classroom experiment of the market model. Which does she know?
her own willingness to sell
In a market, buyers compete with ________, and sellers compete with ________ .
other buyers; other sellers
By the early 1970s, nationalizations in the OPEC countries made it possible for OPEC countries to act together to:
reduce supply and raise prices.
A "change in demand" and a "change in quantity demanded" are:
related, but different, concepts.
The "gains from trade" can be defined as:
the difference between a good's value and its cost.
In Vernon Smith's experiment, the distribution of cards with the seller costs determined the:
supply curve.
A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.
supply; fall; quantity demanded to increase
Was Vernon Smith able to predict expected equilibrium price and quantity in his experiment?
Yes, because he knew what the demand and supply curves should look like.
A shift in the demand curve refers to:
a change in demand.
A decrease in quantity demanded is caused by:
a decrease in supply.
An increase in demand along a fixed supply curve results in:
a higher equilibrium quantity
If there is no waste and all potential gains from trade have been exploited, then a market must:
be in equilibrium.
The demand and supply model predicted all of the following outcomes of Vernon Smith's experiment EXCEPT:
consumer surplus and producer surplus were equal.
Which of the following causes a change in supply?
A change in cost
Which of the following can cause a change in quantity supplied?
A change in demand
In a free market setting where quantity supplied is 50 units and quantity demanded is 40 units, price will:
fall
Holding demand constant, if the supply curve shifts to the left, there will be a(n) _____ in equilibrium price and a(n) _____ in equilibrium quantity.
increase; decrease
To an economist, the price system's ability to coordinate massive amounts of activity all over the world is:
mysterious and inspiring.
Thanks to the price system, local interests and local knowledge are:
coordinated with other local interests and local knowledge across the global market.
If in a market there are no unexploited gains from trade and no wasteful trades, it must be that:
the equilibrium quantity is being produced.
Graphically speaking, the equilibrium price and quantity can be found by locating:
the intersection of the supply and demand curves.
The equilibrium price in a market is the price at which:
quantity demanded equals quantity supplied.
equilibrium price
the price at which the quantity demanded is equal to the quantity supplied
A surplus will occur in the market for oil if:
the price of oil is above the equilibrium price.
The equilibrium price is the price where:
the quantity demanded is equal to the quantity supplied.
The price system is able to coordinate activity in many places around the world to deliver goods such as Valentine's Day roses, when each person:
acts in his or her own self-interest.
In order to conduct his demand and supply model experiments, Vernon Smith assigned all of his students the roles of:
buyers or sellers.
Economic growth in China has led to more Chinese people owning cars, which:
increased demand for oil, causing oil prices to rise.
Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?
The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of those guitars on the used market.
Which choice explains how the OPEC crisis of 1973 affected oil prices?
The supply of oil was reduced, leading to a rise in oil prices.
Which of the following is NOT true about the free market equilibrium?
There are opportunities for further gains from trade between buyers and sellers.
At quantities lower than the equilibrium quantity, which of the following is true?
There are unexploited gains from trade because buyers are willing to pay more than sellers require for another unit.
Suppose you were a participant in Vernon Smith's experiment and you received a card that read, "Your value: $4." What does this mean?
This means that the most you should be willing to pay to buy the good is $4.
The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. Which is the best analysis of this situation?
This surplus of houses led to decreases in housing prices.
Movement downward along a fixed demand curve is called:
an increase in quantity demanded.
Movement upward along a fixed supply curve is called:
an increase in quantity supplied.
If the supply of oil decreased in the United States, then:
quantity demanded would decrease in the United States.
The demand and supply curves show how buyers and sellers ________; the interaction of buyers and sellers ________.
respond to prices; determines the price
What is the difference between a change in the demand and a change in quantity demanded?
A change in demand shifts the entire curve; a change in quantity demanded means price changed.
Which of the following causes a change in quantity demanded?
A change in the good's price
Suppose there is an increase in demand in a market and no change in the supply. What will happen to the market equilibrium price and quantity?
Equilibrium price will rise; equilibrium quantity will rise.
How did Vernon Smith create realistic incentives for his students to maximize the gains from trade?
He paid them an amount of money equal to the consumer or producer surplus they earned.
The financial crisis of 2007-2010 had a huge impact on the U.S. housing market, causing the number of uninhabited houses to be far greater than the number of people able and willing to buy a house. What probably happened in the housing market?
Housing prices fell.
An undergraduate student participates in a supply and demand experiment in his managerial economics course. What can he expect the laboratory experiment to reveal about the supply and demand model?
It successfully predicts real-life behavior.
What happens at any price other than the equilibrium price?
Forces are put into play that move the price toward the equilibrium price.
In addition to experiments like those that Vernon Smith conducted, which additional method does Professor Tabarrok discuss to test the demand and supply model?
Examining its predictions about what happens when the demand or supply curve shifts
At the market equilibrium:
all trades that can generate gains from trade take place, and no trades take place that would not generate gains from trade.
In the late 1990s, Beanie Babies became very popular collectible toys. Many buyers spent a great deal of time visiting multiple retail locations to find specific Beanie Babies that retailers had a very hard time keeping in stock. What probably describes the eBay prices for Beanie Babies during that time?
The eBay prices were higher than the retail prices because the retail prices led to shortages of Beanie Babies.
Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box, but only one box is available between these two buyers, then gains from trade will be maximized when:
Tim buys the treats.
If demand increases, ceteris paribus, market price will be ______ at the new equilibrium point.
higher
At a price lower than the equilibrium price, there is a _______, and buyers _______.
shortage; demand more than sellers are willing to sell
_______ is caused by a reduction in costs, while _______ is caused by an increase in demand.
An increase in supply; an increase in quantity supplied
An increase in supply is a:
shift in the supply curve to the right.
If the demand for oil decreased:
market price would fall.
A shortage occurs when the _____ is greater than the quantity supplied.
quantity demanded
Gains from trade are maximized at market equilibrium because:
only the highest-value buyers buy and only the lowest-cost sellers sell.
There is a great amount of global cooperation in the market for roses thanks to each of the following, EXCEPT:
the Global Rose Czar who coordinates global rose activity.
The market equilibrium separates the demand curve into two parts: _______ and _______.
the buyers; the non-buyers
Millions more roses are demanded on Valentine's Day than on any other day. How do rose farmers in Kenya know to produce enough roses?
through the price system
shortage
a situation in which the quantity demanded is greater than the quantity supplied
The work of Vernon Smith _______ the demand and supply model; this is _______.
supported; not what Smith expected