Econ Chapter 3 - Test Questions

A price ceiling will result in a shortage only if the ceiling price is _________ the equilibrium price. - less than - greater than - equal to

- less than

Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ________ of memory chips. - surplus - shortage - equilibrium quantity

- surplus

Which statement is consistent with the law of demand? - A reduction in market price will lead to a decrease in quantity demanded. - A reduction in market price will lead to an increase in quantity demanded. - An increase in market price will lead to an increase in quantity demanded. - At a zero price quantity demanded will be equal to zero.

- A reduction in market price will lead to an increase in quantity demanded.

A price ceiling will result in a shortage only if the ceiling price is _________ the equilibrium price. - greater than - less than - faster than - equal to

- less than

How do you derive a market supply curve from individual supply curves? - Calculate the average quantity supplied among all producers - Add up quantities supplied by all individual producers for each price - Add up prices paid for each unit supplied by producers - Use the largest quantity supplied among all producers for each price

- Add up quantities supplied by all individual producers for each price

Which statement is consistent with the law of supply? - An increase in market price will lead to an increase in quantity supplied. - At a zero price quantity supplied will be infinite. - A reduction in market price will lead to an increase in quantity supplied. - An increase in market price will lead to a decrease in quantity supplied.

- An increase in market price will lead to an increase in quantity supplied.

Which of the following characteristics leads to a upward-sloping supply curve? Select all that apply. - Increasing opportunity costs - Increasing marginal costs - Diminishing marginal utility - A decrease in resource prices - An increase in resource prices - Increasing labor productivity

- Increasing opportunity costs - Increasing marginal costs

Which of the following characteristics lead to a downward-sloping demand curve? Select all that apply. - Increasing opportunity costs - Increasing marginal benefit - Diminishing preferences for a particular good - A decline in the price of a related good - An increase in purchasing power as market price decreases - Diminishing marginal utility

- An increase in purchasing power as market price decreases - Diminishing marginal utility

How is a market demand curve derived from individual demand curves? - Add up quantities demanded by all individual consumers for each price - Calculate the average quantity demanded among all consumers - Add up prices paid for each unit demanded by individuals - Use the largest quantity demanded among all consumers for each price

- Add up quantities demanded by all individual consumers for each price

How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity increase or decrease, or are the answers indeterminate because they depend on the magnitudes of the shifts? - Increases - Decreases - Indeterminate a. Supply decreases and demand is constant. Price: Quantity b. Demand decreases and supply is constant. Price: Quantity: c. Supply increases and demand is constant. Price: Quantity: d. Demand increases and supply increases. Price: Quantity: e. Demand increases and supply is constant. Price: Quantity: f. Supply increases and demand decreases. Price: Quantity: g. Demand increases and supply decreases. Price: Quantity: h. Demand decreases and supply decreases. Price: Quantity:

a.) - Increases - Decreases b.) - Decreases - Decreases c.) - Decreases - Increases d.) - Indeterminate - Increases e.) - Increases - Increases f.) - Decreases - Indeterminate g.) - Increases - Indeterminate h.) - Indeterminate - Decreases

What effect will each of the following have on the supply of auto tires? (Keeping all else constant) - Increase - Decrease - No change a. A technological advance in the methods of producing tires: . b. A decline in the number of firms in the tire industry: . c. An increase in the prices of rubber used in the production of tires: . d. The expectation that the equilibrium price of auto tires will be lower in the future than currently: . e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production. (with no change in the price of auto tires): . f. The levying of a per-unit tax on each auto tire sold: . g. The granting of a 50-cent-per-unit subsidy for each auto tire produced: .

a.) - Increase b.) - Decrease c.) - Decrease d.) - Increase e.) - Increase f.) - Decrease g.) - Increase

Will the equilibrium price of orange juice increase or decrease in each of the following situations? - increase - decrease - indeterminate a. A medical study reporting that orange juice reduces cancer is released at the same time that a freak storm destroys half of the orange crop in Florida: ___________ . b. The prices of all beverages except orange juice fall by half while unexpectedly perfect weather in Florida results in an orange crop that is 20 percent larger than normal:__________ .

a.) - increase b.) - decrease

What effect will each of the following have on the demand for small automobiles such as the Mini-Cooper and Fiat 500? - increase - decrease - no change - cannot be determined a. Small automobiles become more fashionable: . b. The price of large automobiles rises (with the price of small autos remaining the same): . c. Income declines and small autos are an inferior good: . d. Consumers anticipate that the price of small autos will greatly come down in the near future: . e. The price of gasoline substantially drops: .

a.) - increase b.) - increase c.) - increase d.) - decrease e.) - cannot be determined

In 2001 an outbreak of hoof-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the following? - increase - decrease a. The supply of cattle hides: b. Hide prices: c. The supply of leather goods: d. The price of leather goods:

a.) decrease b.) increase c.) decrease d.) increase