Economics 2000- Keniston Exam 1

What are the characteristics of a Perfectly competitive market?

-all goods are exactly the same -buyers and sellers are so numerous that no one can impact the market or price -There are no barriers to entry into or exit from the market.

what are the characteristics of a competitive market?

-many buyers and many sellers -each buyer and seller has a negligible impact on the market and price.

What causes a shift in the demand curve?

-number of buyers -Income -Consumer Expectations of the future -consumer taste -price of related goods

if good 1 and good 2 are complements, a increase in price for good 1 would cause:

a decrease in demand, thus a shift left for good 2

when two goods are perfect substitutes, the indifference curve is

a downward sloping straight line

When two goods are perfect complements, the indifference curve is

a right angle

what would happen to the equilibrium price and quantity of lattés if consumers' incomes rise and lattés are a normal good? a. Both the equilibrium price and quantity would increase. b. Both the equilibrium price and quantity would decrease. c. The equilibrium price would increase, and the equilibrium quantity would decrease. d. The equilibrium price would decrease, and the equilibrium quantity would increase.

a. Both the equilibrium price and quantity would increase.

Which of the following characteristics is required for a competitive market? a. Both b and c are correct. b. The goods offered for sale are exactly the same. c. There are so many buyers and sellers that no single buyer or seller has any influence over the market price. d. it is difficult for new sellers to enter the market.

a. both b and c are correct

Consider the marker for portable air conditioners in equilibrium. A summer of unseasonably cool weather would cause: a. both the equilibrium price and quantity to decrease. b. both the equilibrium price and quantity to increase. c. the equilibrium price to increase and the equilibrium quantity to decrease. d. the equilibrium price to decrease and the equilibrium quantity to increase.

a. both the equilibrium price and quantity to decrease.

Suppose the price of hot wings is $10, the price of beer is $1, and the consumer's income is $50. In addition, suppose the consumer's budget constraint illustrates hot wings on the horizontal axis and beer on the vertical axis. If the price of beer doubles to $2, then the Select one: a. budget constraint intersects the vertical axis at 25 beers. b. slope of the budget constraint rises to -2. Incorrect Incorrect c. slope of the budget constraint falls to -4. d. budget constraint shifts inward in a parallel fashion.

a. budget constraint intersects the vertical axis at 25 beers.

Which of the following events must cause equilibrium price to rise? Select one: a. demand increases and supply decreases b. demand and supply both decrease c. demand decreases and supply increases d. demand and supply both increase

a. demand increases and supply decreases

If the price elasticity of supply is 0.8, and price increased by 5%, quantity supplied would: a. increase by 4%. b. increase by 6.25%. c. decrease by 4%. d. decrease by 6.25%.

a. increase by 4%

Warrensburg is a small college town in Missouri. At the end of August each year, the market demand for fast food in Warrensburg: a. increases. b. decreases. c. remains constant, but we observe a movement downward and to the right along the demand curve. d. remains constant, but we observe a movement upward and to the left along the demand curve.

a. increases

A person who takes a prescription drug to control high cholesterol most likely has a demand for a drug that is: a. inelastic b. unit elastic c. elastic d. highly responsive to changes in income.

a. inelastic

What would happen to the equilibrium price and quantity of coffee if the wages of coffee-bean pickers fell and the price of tea fell? a. Price would fall, and the effect on quantity would be ambiguous. b. Price would rise, and the effect on quantity would be ambiguous. c. Quantity would fall, and the effect on price would be ambiguous. d. Quantity would rise, and the effect on price would be ambiguous.

a. price would fall, and the effect on quantity would be ambiguous.

Suppose there is a decrease in the price of corn. If corn is an input into the production of ethanol, we would expect the supply curve for ethanol to: a. shift rightward. b. shift leftward. c. remain unchanged. d. become flatter.

a. shift rightward

A university's football stadium is always sold out, and students who wait in line for hours may be turned away. This indicates: a. the ticket price is below the equilibrium price. b. the ticket price is at the equilibrium price. c. the ticket price is above the equilibrium price. d. nothing about the equilibrium price.

a. the ticket price is below the equilibrium price.

For a particular good, a 5 percent increase in price causes a 15 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?a. a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is broadly defined. d. The relevant time horizon is short.

a. there are many substitutes for this good.

Which of the following would shift the supply of Green Bay Packers football jerseys to the left? a. The Green Bay Packers make it to the Super Bowl. b. The cost of the fabric used to make the jerseys increases. c. The technology of sewing machines use to make the jerseys improves. d. The price of the jerseys increases by $15.

b. The cost of the fabric used to make the jerseys increases.

An increase in price causes an increase in total revenue when demand is: a. elastic b. inelastic c. unit elastic d. all of the above are possible

b. inelastic

For a particular good, a 12 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good? a. There are many substitutes for this good. b. The good is a necessity. c. The market for the good is narrowly defined. d. The relevant time horizon is long.

b. the good is a necessity

The price elasticity of supply measures how much: a. the quantity supplied responds to changes in input prices. b. the quantity supplied responds to changes in the price of the good. c. the price of the good responds to changes in supply. d. sellers respond to changes in technology.

b. the quantity supplied responds to changes in the price of the good.

Years ago, thousands of country music fans risked their lives by rushing to buy tickets for a Willie Nelson concert at Carnegie Hall. This behavior indicates: a. the ticket price was above the equilibrium price. b. the ticket price was below the equilibrium price. c. the ticket price was at the equilibrium price. d. nothing about the equilibrium price.

b. the ticket price was below the equilibrium price.

A family on a trip budgets $800 for meals and hotel accommodations. Suppose the price of a meal is $40. In addition, suppose the family could afford a total of 8 nights in a hotel if they don't buy any meals. How many meals could the family afford if they gave up two nights in the hotel?: a. 1 b. 2 c. 5 d. 8

c. 5

Assume Leo buys coffee beans in a competitive market. It follows that: a. None of the above is correct. b. Leo will negotiate with sellers whenever he buys coffee beans c. Leo cannot influence the price of coffee beans even if he buys a large quantity quantity of them. d. Leo has a limited number of sellers from which to buy coffee beans

c. Leo cannot influence the price of coffee beans even if he buys a large quantity of them.

Beef is a normal good. You observe that both the equilibrium price and quantity of beef have fallen over time. Which of the following explanations would be most consistent with this observation? a. Consumers have experienced an increase in income, and beef-production technology has improved. b. The price of chicken has risen, and the price of steak sauce has fallen. c. New medical evidence has been released that indicates a negative correlation between a person's beef consumption and life expectancy. d. The demand curve for beef must be positively sloped.

c. New medical evidence has been released that indicated a negative correlation between a person's beef consumption and life expectancy.

Which of the following events could cause an increase in the supply of ceiling fans? a. There is an increase in the price of the motor that powers ceiling fans. b. There is an increase in the price of air conditioners, and consumers regard air conditioners and ceiling fans as substitutes. c. The number of sellers of ceiling fans increases. d. All of the above are correct.

c. The number of sellers of ceiling fans increases.

An decrease in the price of oranges would lead to a(n): a. increased supply of oranges. b. a movement up and to the right along the supply curve for oranges. c. a movement down and to the left along the supply curve for oranges. d. increase in the prices of inputs used in orange production.

c. a movement down and to the left along the supply curve for oranges.

Which of the following might cause the supply curve for an inferior good to shift to the right?: a. an increase in input prices b. a decrease in consumer income c. an improvement in production technology that makes production of the good more profitable d. a decrease in the number of sellers in the market

c. an improvement in production technology that makes production of the good more profitable

A likely example of complementary goods for most people would be: a. lawnmowers and automobiles b. butter and margarine c. chips and salsa d. cola and lemonade

c. chips and salsa

You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase the total revenue of a bakery. The first step you would take would be to: a. increase the price of every loaf of bread in the store. b. look for ways to cut costs and increase profit for the bakery. c. determine the price elasticity of demand for the bakery's products. d. determine the price elasticity of supply for the bakery's products.

c. determine the price elasticity of demand for the bakery's products.

When the price of peaches changes, the demand curve for peaches: a. shifts because the price of peaches is measured on the vertical axis of the graph. b. shifts because the quantity demanded of peaches is measured on the horizontal axis of the graph. c. does not shift because the price of peaches is measured on the vertical axis of the graph. d. does not shift because the price of peaches is measured on the horizontal axis of the graph.

c. does not shift because the price of peaches is measured on the vertical axis of the graph.

Recent forest fires in the western states are expected to cause the price of lumber to rise in the next six months. As a result, we can expect the supply of lumber to: a. fall in six months but not now b. increase in six months when the price goes up. c. fall now d. increase now to meet as much demand as possible.

c. fall now

An increase in the price of a good would: a. increase the supply of the good. b. increase the amount purchased by buyers. c. give producers an incentive to produce more. d. decrease both the quantity demanded of the good and the quantity supplied of the good.

c. give producers more incentive to produce more.

if Kindle e-readers and Nook e-readers are substitutes, a higher price for Nooks would result in a: a. decrease in the demand for kindles. b. decrease in the demand for Nooks. c. increase in the demand for kindles. d. increase in the demand for Nooks.

c. increase in the demand for Kindles

A likely example of substitute goods for most people would be: a. peanut butter and jelly. b. tennis balls and pens c. pencils and pens d. televisions and subscriptions

c. pencils and pens

Which of the following is likely to have the most price inelastic demand? a. white chocolate chip with macadamia nut cookies b. hardback novels c. salt d. box seats at a major league baseball game

c. salt

An example of a perfectly competitive market would be the market for: a. coffee shops b. restaurants c. soybeans d. electricity

c. soybeans

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the Select one: a. demand for bicycle assembly workers will increase. b. supply of bicycles will shift to the right. c. supply of bicycles will shift to the left. d. firm must increase output to maintain profit levels.

c. supply of bicycles will shift to the left.

If, at the current price, there is a shortage of a good, then: a. sellers are producing more than buyers wish to buy. b. the market must be in equilibrium c. the price is below the equilibrium price d. quantity demanded equals quantity supplied.

c. the price is below equilibrium price

Assume the market for pork is perfectly competitive. When one pork buyer exits the market, Select one: a. the price of pork increases. b. the price of pork decreases. c. the price of pork does not change. d. there is no longer a market for pork.

c. the price of pork does not change.

The Atkins diet in the 90s was focused on an egg only based diet, this did what to the demand curve for eggs?

caused an increase in demand, shifting the demand curve right

What causes a movement along the demand curve?

change in price

Law of Demand

consumers buy more of a good when its price decreases and less when its price increases

When two goods are perfect complements, the indifference curve is Select one: a. a horizontal straight line. b. bowed outward. c. a downward-sloping straight line. d. a right angle.

d. a right angle

Which of the following is not a characteristic of a perfectly competitive market? a. Different sellers sell identical products. b. There are many sellers. c. Sellers must accept the price the market determines. d. All of the above are characteristics of a perfectly competitive market.

d. all of the above are characteristics of a perfectly competitive market.

If a shortage exists in a market, then we know that the actual price is: a. below the equilibrium price, and quantity supplied is greater than quantity demanded. b. above the equilibrium price, and quantity demanded is greater than quantity supplied. c. above the equilibrium price, and quantity supplied is greater than quantity demanded. d. below the equilibrium price, and quantity demanded is greater than quantity supplied.

d. below the equilibrium price, and quantity demanded is greater than quantity supplied.

Most studies indicate that alcohol and marijuana tend to be: a. unrelated because one good is legal while the other one is legal. b. inferior goods c. substitutes d. complements

d. complements

Consider the market for new DVDs. If DVD players became cheaper, buyers expected DVD prices to fall next year, used DVDs became more expensive, and DVD production technology improved, then the equilibrium price of a new DVD would Select one: a. rise. b. fall. c. stay the same. d. could rise, fall, or remain unchanged.

d. could rise, fall, or remain unchanged.

Opponents of alcohol taxes often argue that alcohol and marijuana are substitutes so that high liquor prices: a. discourage marijuana use, but the evidence does not support this argument. b. discourage marijuana use, and the evidence supports this argument. c. encourage marijuana use, and the evidence supports this argument. d. encourage marijuana use, but the evidence does not support this argument.

d. encourage marijuana use, but the evidence does not support this argument.

Suppose the number of buyers in a market increases and a technological advancement occurs also. What would we expect to happen in the market? a. Equilibrium price would decrease, but the impact on equilibrium quantity would be ambiguous. b. Equilibrium price would increase, but the impact on equilibrium quantity would be ambiguous. c. Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous. d. Equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

d. equilibrium quantity would increase, but the impact on equilibrium price would be ambiguous.

Soup is an inferior good if the demand: a. for soup falls when the price of a substitute for soup rises. b. for soup rises when the price of soup falls. c. curve for soup slopes upward. d. for soup falls when income rises.

d. for soup falls when income rises

As we move downward and to the right along a linear, downward-sloping demand curve, a. both slope and elasticity remain constant. b. slope changes but elasticity remains constant. c. both slope and elasticity changes. d. slope remains constant but elasticity changes.

d. slope remains constant but elasticity changes.

Buyers are able to buy all they want to buy and sellers are able to sell all they want to sell at: a. prices at and above the equilibrium price. b. prices at and below the equilibrium price. c. prices above and below the equilibrium price, but not at the equilibrium price. d. the equilibrium price but not above or below the equilibrium price

d. the equilibrium price but not above or below the equilibrium price

when two goods are perfect substitutes the marginal rate of substitution

is constant

what impact does an increase in income have on the demand curve for a normal good?

it shifts the demand curve to the right

Around Halloween, if the price of halloween candy is expected to increase what will this do to the demand curve for candy at the end of September?

it will cause a increase in demand, shifting the curve right

an increase in the number of buyers causes a increase in demand thus causing a:

shift in the demand curve to the right