ECON EXAM (Chapter 3)

College classes and textbooks are a) complementary goods. b) substitute goods. c) independent goods. d) inferior goods.

A

Rising demand for motor homes is most likely caused by a) an increase in the number of retirees who wish to travel. b) a decrease in the price of hotels and motels. c) consumer preferences toward "on the road" living. d) all of the above.

A

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is a) price. b) expectations. c) preferences. d) incomes. Done

A

The law of supply indicates that, other things equal, a) producers will offer more of a product at high prices than at low prices. b) the product supply curve is downward sloping. c) consumers will purchase less of a good at high prices than at low prices. d) producers will offer more of a product at low prices than at high prices.

A

The location of the product supply curve depends on a) production technology. b) the number of buyers in the market. c) the tastes of buyers. d) the location of the demand curve.

A

The price at which the intentions of the buyers and sellers exactly match is the a) market-clearing price. b) future price of the product. c) current price of the product. d) all of these choices are correct.

A

The supply curve shows the relationship between a) price and quantity supplied. b) production costs and the amount demanded. c) total business revenues and quantity supplied. d) physical inputs of resources and the resulting units of output.

A

The term "market-clearing price" means the same thing as the equilibrium price. a) True b) False

A

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer Adidas soccer balls whose prices had remained the same. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls? a) the income and substitution effects b) the income effect c) an increase in the demand for Nike soccer balls d) the price obstacle effect

A

Which of the following would shift the demand curve for beef? a) a widely publicized study that indicates beef consumption increases one's cholesterol b) a new subsidy for cattle producers c) an increase in cattle feed d) an increase in the number of cattle ranches

A

At the current price, there is a shortage of a product. We would expect price to a) increase, quantity demanded to increase, and quantity supplied to decrease. b) increase, quantity demanded to decrease, and quantity supplied to increase. c) increase, quantity demanded to increase, and quantity supplied to increase. d) decrease, quantity demanded to increase, and quantity supplied to decrease.

B

One can say with certainty that equilibrium price will decline when supply a) and demand both decrease. b) increases and demand decreases. c) decreases and demand increases. d) and demand both increase.

B

The decrease in demand for housing in small rural communities is likely because a) everyone in town already has a house. b) the out-migration from small rural towns is reducing the number of buyers. c) potential buyers are expecting the price of housing to go down sometime in the next ten years so they are waiting it out. d) all of the above.

B

Which of the following is most likely to be a normal good? a) new tires b) both new textbooks and new tires c) None of the answer choices is correct. d) new textbooks

B

An improvement in production technology will a) increase equilibrium price. b) shift the supply curve to the left. c) shift the supply curve to the right. d) shift the demand curve to the left.

C

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates the a) demand for oranges will necessarily rise. b) equilibrium quantity of oranges will rise. c) amount of oranges that will be available at various prices has declined. d) price of oranges will fall.

C

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. An improvement in the technology used to produce X will a) decrease S, increase P, and decrease Q. b) decrease S, increase P, and increase Q. c) increase S, decrease P, and increase Q. d) decrease D, decrease P, and decrease Q.

C

Increasing marginal cost of production explains a) the law of demand. b) the income effect. c) why the supply curve is upsloping. d) why the demand curve is downward sloping.

C

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect a) the supply of ethanol, a corn-based product, to increase. b) consumer demand for wheat to fall. c) the supply to increase as farmers plant more corn. d) the supply to fall as farmers plant more of other crops.

C

When the price of a product rises, consumers with a given money income shift their purchases to other products whose prices are now relatively lower. This statement describes a) an inferior good. b) the rationing function of prices. c) the substitution effect. d) the income effect.

C

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n) a) increase in the demand for gasoline. b) decrease in the demand for gasoline. c) increase in the supply of gasoline. d) decrease in the supply of gasoline.

C

A rightward shift of a product supply curve might be caused by a) an increase in taxes. b) a decrease in subsidies. c) a decrease in consumer incomes. d) expectations that the future price will be lower.

D

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the a) demand curve for cigarettes rightward. b) demand curve for cigarettes leftward. c) supply curve for cigarettes rightward. d) supply curve for cigarettes leftward.

D

An inferior good is a) one whose demand curve will shift rightward as incomes rise. b) one whose price and quantity demanded vary directly. c) one that has not been approved by the U.S. Food and Drug Administration. d) not accurately defined by any of these statements.

D

Economists use the term "demand" to refer to a) a particular price-quantity combination on a stable demand curve. b) the total amount spent on a particular commodity over a fixed time period. c) an upsloping line on a graph that relates consumer purchases and product price. d) a schedule of various combinations of market prices and quantities demanded.

D

In moving along a supply curve, which of the following is not held constant? a) the number of firms producing this good b) expectations about the future price of the product c) techniques used in producing this product d) the price of the product itself

D

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by a) an increase in the cost of making donuts. b) an increase in the price of coffee. c) consumers expecting donut prices to fall. d) a change in buyer tastes.

D

Running shoes and staplers are a) substitute goods. b) complementary goods. c) inferior goods. d) independent goods.

D

Snowboards and lift tickets are a) inferior goods. b) independent goods. c) substitute goods. d) complementary goods.

D

The term "market-clearing price" refers to the a) equilibrium price. b) price where quantity demanded equals quantity supplied. c) price where the intentions of buyers and sellers match. d) all of these choices are correct.

D

Allocative efficiency is concerned with a) producing the combination of goods most desired by society. b) achieving the full employment of all available resources. c) producing every good with the least-cost combination of inputs. d) reducing the concavity of the production possibilities curve.

A

Assume product A is an input in the production of product B. In turn, product B is a complement to product C. We can expect a decrease in the price of A to a) increase the supply of B and increase the demand for C. b) decrease the supply of B and increase the demand for C. c) decrease the supply of B and decrease the demand for C. d) increase the supply of B and decrease the demand for C.

A

Because of perfect weather during the planting and growing season, the supply of peaches has substantially increased. This statement indicates the a) amount of peaches that will be available at each price will increase. b) demand for peaches will necessarily rise. c) equilibrium quantity will fall. d) equilibrium price will rise.

A

Because successive units of a good produce less and less additional satisfaction, the price must fall to encourage a buyer to purchase more units of the good. This statement is most consistent with which explanation for the law of demand? a) diminishing marginal utility b) the rationing function of prices c) the substitution effect d) the income effect

A

If the government reduces the subsidy to universities, we can expect a) a decrease in the supply of higher education. b) an increase in the supply of higher education. c) higher education to not be affected since they can simply raise tuition. d) universities to cut the amount of money spent on the football program.

A

Lower resource prices reduce production costs and increase profits; therefore a) when resource prices fall, firms supply greater output at each product price. b) when resource prices fall, firms supply less output at each product price. c) the demand curve will shift right, decreasing profits. d) the firms will not be motivated to increase production.

A

Productive efficiency refers to a) the use of the least-cost method of production. b) the production of the product mix most wanted by society. c) the full employment of all available resources. d) production at some point inside of the production possibilities curve.

A

Since their introduction, prices of smartphones have fallen and the quantity purchased has increased. This statement a) suggests that the supply of smartphones has increased. b) suggests that the demand for smartphones has increased. c) constitutes an exception to the law of demand in that this suggests an upsloping demand curve. d) constitutes an exception to the law of supply in that this suggests a downward sloping supply curve.

A

The Mississippi River have become impassible for riverboats due to low water levels because of the drought. Farmers that normally transport their grain by barge must now use more costly big trucks to get their products to market. This will cause the a) supply curves for agricultural products to shift left. b) supply curves for agricultural products to shift right. c) demand curves for agricultural products to shift left. d) demand curves for agricultural products to shift right.

A

The law of demand states that, other things equal, a) price and quantity demanded are inversely related. b) the larger the number of buyers in a market, the lower will be the product price. c) price and quantity demanded are directly related. d) consumers will buy more of a product at high prices than at low prices.

A

A demand curve a) shows the relationship between price and quantity supplied. b) indicates the quantity demanded at each price in a series of prices. c) graphs as an upsloping line. d) shows the relationship between income and spending.

B

A recent study found that an increase in the federal tax on beer (which would increase the price of beer) would reduce the demand for marijuana. Based on this information we can conclude that a) beer and marijuana are substitute goods. b) beer and marijuana are complementary goods. c) beer is an inferior good. d) marijuana is an inferior good.

B

Allocative efficiency refers to a) the use of the least-cost method of production. b) the production of the product mix most wanted by society. c) the full employment of all available resources. d) production at some point inside of the production possibilities curve.

B

Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread, and potatoes are a consumer substitute for bread, we would expect the price of wheat to a) rise, the supply of bread to increase, and the demand for potatoes to increase. b) rise, the supply of bread to decrease, and the demand for potatoes to increase. c) rise, the supply of bread to decrease, and the demand for potatoes to decrease. d) fall, the supply of bread to increase, and the demand for potatoes to increase.

B

Assume that the supply curve for product L is upsloping. If the price of L rises from $1.75 to $2, a) the supply of L will decrease. b) a larger quantity of L will be supplied. c) the supply of L will increase. d) a smaller quantity of L will be supplied.

B

Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5 both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to a) raise their price and reduce their quantity supplied. b) raise their price and increase their quantity supplied. c) lower their price and reduce their quantity supplied. d) lower their price and increase their quantity supplied.

B

If possible, firms will switch to production of an alternative good when its price increases; this is referred to as a a) substitute in consumption. b) substitute in production. c) complement in production. d) complement in consumption.

B

If there is a shortage of product X, and the price is free to change, a) fewer resources will be allocated to the production of this good. b) the price of the product will rise. c) the price of the product will decline. d) the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

B

In 2025, the price of oil increased, which in turn contributed to a rise in the price of natural gas. This can best be explained by saying that oil and natural gas are a) complementary goods, and the higher price for oil increased the demand for natural gas. b) substitute goods, and the higher price for oil increased the demand for natural gas. c) complementary goods, and the higher price for oil decreased the supply of natural gas. d) substitute goods, and the higher price for oil decreased the supply of natural gas.

B

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. Removing the excise tax on product X will a) decrease S, decrease P, and increase Q. b) increase S, decrease P, and increase Q. c) decrease S, increase P, and increase Q. d) increase D, increase P, and decrease Q.

B

Other things equal, applying a subsidy to a product will a) decrease its supply. b) lower its price. c) not change either the price or quantity sold. d) decrease its demand.

B

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived, he discovered that hamburgers were on sale for $1 each, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by a) the substitution effect. b) the income effect. c) the price effect. d) a rightward shift in the demand curve for hamburgers.

B

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. A decrease in the price of X can be expected to a) decrease the supply of Z. b) decrease the demand for Z. c) have no effect on the demand of product Z. d) increase the demand for Z.

B

The equilibrium price refers to a) only resource prices, not product prices. b) the market-clearing price. c) only product prices, not resource prices. d) none of these answers are correct.

B

The upward slope of the supply curve reflects the a) principle of specialization in production. b) law of supply. c) fact that price and quantity supplied are inversely related. d) law of diminishing marginal utility.

B

When the price of Wilson tennis balls decreased, Roger purchased Wilson tennis balls instead of Dunlop tennis balls whose prices had remained the same. Which of the following best explains Roger's decision to buy more Wilson tennis balls? a) the law of diminishing marginal utility b) the substitution effect c) the rationing effect d) the purchasing power effect

B

A shift to the right in the demand curve for product A can be most reasonably explained by saying that a) consumer incomes have declined, and consumers now want to buy less of A at each possible price. b) the price of A has increased and, as a result, consumers want to purchase less of it. c) consumer preferences have changed in favor of A so they now want to buy more at each possible price. d) the price of A has declined and, as a result, consumers want to purchase more of it.

C

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will a) decrease, quantity demanded will decrease, and quantity supplied will increase. b) decrease and quantity demanded and quantity supplied will both decrease. c) decrease, quantity demanded will increase, and quantity supplied will decrease. d) increase, quantity demanded will decrease, and quantity supplied will increase.

C

Data from the registrar's office at Gigantic State University indicate that over the past 20 years tuition and enrollment have both increased. From this information we can conclude that a) higher education is an exception to the law of demand. b) the supply of education provided by GSU has also increased over the 20-year period. c) factors such as school-age population, incomes, and preferences for education have increased over the 20-year period. d) GSU's supply curve of education is downward sloping.

C

Graphically, the market demand curve is a) steeper than any individual demand curve that is part of it. b) greater than the sum of the individual demand curves. c) the horizontal sum of individual demand curves. d) the vertical sum of individual demand curves.

C

If Z is an inferior good, an increase in money income will shift the a) supply curve for Z to the left. b) supply curve for Z to the right. c) demand curve for Z to the left. d) demand curve for Z to the right.

C

If producers obtain higher prices than before to produce given levels of output, then the following has occurred. a) a decrease in demand b) an increase in demand c) a decrease in supply d) an increase in supply

C

If two goods are complements, a) they are consumed independently. b) an increase in the price of one will increase the demand for the other. c) a decrease in the price of one will increase the demand for the other. d) they are necessarily inferior goods.

C

If we say that a price is too high to clear the market, we mean that a) quantity demanded exceeds quantity supplied. b) the equilibrium price is above the current price. c) quantity supplied exceeds quantity demanded. d) the price of the good is likely to rise.

C

The demand curve shows the relationship between a) money income and quantity demanded. b) price and production costs. c) price and quantity demanded. d) consumer tastes and quantity demanded.

C

The rationing function of prices refers to the a) tendency of supply and demand to shift in opposite directions. b) fact that ration coupons are needed to alleviate wartime shortages of goods. c) ability of a competitive market to equalize quantity demanded and quantity supplied. d) ability of the market system to generate an equitable distribution of income.

C

A firm's supply curve is upsloping because a) the expansion of production necessitates the use of qualitatively inferior inputs. b) mass production economies are associated with larger levels of output. c) consumers envision a positive relationship between price and quality. d) beyond some point, the production costs of additional units of output will rise.

D

A increase in the excise tax on gasoline a) has no effect on the price of gasoline since the seller pays the tax. b) raises the price of cars by shifting the demand curve right. c) lowers the price of gasoline by shifting the supply curve right. d) raises the price of gasoline by shifting the supply curve left.

D

A leftward shift of a product supply curve might be caused by a) an improvement in the relevant technique of production. b) a decline in the prices of needed inputs. c) an increase in consumer incomes. d) some firms leaving an industry.

D

A normal good is one a) whose amount demanded will increase as its price decreases. b) whose amount demanded will increase as its price increases. c) whose demand curve will shift leftward as incomes rise. d) for which its consumption varies directly with income.

D

A product market is in equilibrium a) whenever there is no surplus of the product. b) whenever there is no shortage of the product. c) when consumers want to buy more of the product than producers offer for sale. d) where the demand and supply curves intersect.

D

An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that a) there are many goods that are substitutes for bicycles. b) there are many goods that are complementary to bicycles. c) there are few goods that are substitutes for bicycles. d) bicycles are normal goods.

D

If the demand curve for product B shifts to the right as the price of product A declines, then a) both A and B are inferior goods. b) A is a superior good and B is an inferior good. c) A is an inferior good and B is a superior good. d) A and B are complementary goods.

D

Technology a) enables firms to produce given units of output with fewer resources. b) is also referred to as "techniques of production." c) lowers production costs and increases supply. d) all of the above are correct.

D

There will be a surplus of a product when a) price is below the equilibrium level. b) the supply curve is downward sloping and the demand curve is upward sloping. c) the demand and supply curves fail to intersect. d) consumers want to buy less than producers offer for sale.

D

When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes a) an inferior good. b) the rationing function of prices. c) the substitution effect. d) the income effect.

D

When the price of oil increases significantly, the price of gasoline also increases. The latter occurs because of a(n) a) increase in demand for gasoline. b) decrease in demand for gasoline. c) increase in supply of gasoline. d) decrease in supply of gasoline.

D

Which of the following will cause the demand curve for product A to shift to the left? a) population growth that causes an expansion in the number of people consuming A b) an increase in money income if A is a normal good c) a decrease in the price of complementary product C d) an increase in money income if A is an inferior good

D