Final Exam Pt. 2

Which of the following statements is correct?

If supply increases and demand decreases, equilibrium price will fall.

Which of the following statements is not true?

Public goods are only provided by government.

Other things equal, which of the following might shift the demand curve for gasoline to the left?

The development of a low-cost electric automobile.

Which of the following would most likely increase the demand for gasoline?

The expectation by consumers that gasoline prices will be higher in the future.

In moving along a supply curve, which of the following is not held constant?

The price of the product for which the supply curve is relevant.

Which of the following conditions does not need to occur for a market to achieve allocative efficiency?

The total revenue received by producers equals the total cost of production.

Which of the following goods will least likely suffer a decline in demand during a recession?

Toothpaste

If the price elasticity of demand for a product is unity, a decrease in price will:

increase the quantity demanded, but total revenue will be unchanged.

If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will:

increase the quantity supplied of X and decrease the quantity demanded of X.

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:

increase the supply of B and increase the demand for C.

At the current price there is a shortage of a product. We would expect price to:

increase, quantity demanded to decrease, and quantity supplied to increase.

One can say with certainty that equilibrium price will decline when supply:

increases and demand decreases.

A demand curve:

indicates the quantity demanded at each price in a series of prices.

If there is a surplus of a product, its price:

is above the equilibrium level.

A public good:

is available to all and cannot be denied to anyone.

One reason that the quantity demanded of a good increases when its price falls is that the:

lower price increases the real incomes of buyers, enabling them to buy more.

An efficiency loss (or deadweight loss) declines in size when a unit of output is produced for which:

maximum willingness to pay exceeds minimum acceptable price.

Refer to the diagram. An increase in quantity demanded is depicted by a:

move from point x to point y.

An inferior good is:

not accurately defined by any of these statements.

Refer to the diagram, which is a rectangular hyperbola, that is, a curve such that each rectangle drawn from any point on the curve will be of identical area. If this rectangular hyperbola was a demand curve, we could say that it would be:

of unit elasticity throughout.

Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross-price elasticity of demand is:

positive and therefore these goods are substitutes.

Refer to the diagram. A government-set price ceiling is best illustrated by:

price A.

Allocative efficiency refers to:

the production of the product mix most wanted by society.

Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a substitute good (from the buyer's perspective) will:

increase equilibrium price and quantity.

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to:

increase the demand for Z.

The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore, demand for X in this price range:

is elastic.

If government set a maximum price of $45 in the market:

it would create neither a shortage nor a surplus.

In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is:

the price of the product itself.

Graphically, if the supply and demand curves are linear, consumer surplus is measured as the triangle:

under the demand curve and above the actual price.

Which of the following statements is true about productive and allocative efficiency in a free market?

Realizing allocative efficiency implies that productive efficiency has been realized.

D = Demand, S = Supply, P = Price, Q = Quantity. Consider the market for good X. All else equal, a decrease in the number of consumers of product X will:

decrease D, decrease P, and decrease Q.

Refer to the table. In relation to column (3), a change from column (5) to column (4) would indicate a(n):

decrease in supply.

Suppose an excise tax is imposed on product X. We expect this tax to:

decrease the demand for complementary good Y and increase the demand for substitute product Z.

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will:

increase equilibrium price and quantity if the product is a normal good.

The law of demand states that, other things equal:

price and quantity demanded are inversely related.

In this market, economists would call a government-set maximum price of $40 a:

price ceiling.

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium:

price must rise, but equilibrium quantity may rise, fall, or remain unchanged.

Refer to the diagram. A shortage of 160 units would be encountered if price was:

$0.50.

Refer to the diagram. A surplus of 160 units would be encountered if the price was:

$1.60.

Refer to the diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is:

$60.

Refer to the table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be:

$8 and 60 units.

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:

20 percent reduction in price.

The supply of product X is elastic if the price of X rises by:

5 percent and quantity supplied rises by 7 percent.

The elasticity of supply of product X is unitary if the price of X rises by:

8 percent and quantity supplied rises by 8 percent.

Which of the diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for computer software?

A only.

Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?

A only.

Which of the following will cause the demand curve for product A to shift to the left?

An increase in money income if A is an inferior good.

Refer to the diagram. If price falls from P1 to P2, total revenue will become area(s):

B + D.

Which of the diagrams illustrates the effect of a governmental subsidy on the market for AIDS research?

C only.

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles?

D only.

Darcy and Rachel live down the hall from each other in the same dorm. Darcy likes to play her music loudly down the hall, and Rachel finds the music annoying. A Coase theorem solution for this problem would be for:

Darcy and Rachel to negotiate a mutually agreeable level of volume and/or selection of music.

Refer to the diagram. Assuming equilibrium price P1, consumer surplus is represented by areas:

a + b.

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by:

a change in buyer tastes.

A supply curve that is parallel to the horizontal axis suggests that:

a change in demand will change the equilibrium quantity but not price.

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $140. Amanda experiences:

a consumer surplus of $10 and Tony experiences a producer surplus of $190.

Assume the demand curve for product X shifts to the right. This might be caused by:

a decline in income if X is an inferior good.

If two goods are complements:

a decrease in the price of one will increase the demand for the other.

Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75:

a larger quantity of C will be demanded.

Economists use the term "demand" to refer to:

a schedule of various combinations of market prices and amounts/quantities demanded.

The main determinant of elasticity of supply is the:

amount of time the producer has to adjust inputs in response to a price change.

When the percentage change in price is greater than the resulting percentage change in quantity demanded:

an increase in price will increase total revenue.

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. Without government interference, this market will reach:

an overallocation of resources to this product.

A recent study found that an increase in the federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that:

beer and marijuana are complementary goods.

The socially optimal amount of pollution abatement occurs where society's marginal:

benefit of abatement equals its marginal cost of abatement.

Refer to the diagram. Assuming equilibrium price P1, producer surplus is represented by areas:

c + d.

The signaling and incentive functions of prices refers to the:

capacity of a competitive market to equalize quantity demanded and quantity supplied.

Black markets are associated with:

ceiling prices and the resulting product shortages.

A shift to the right in the demand curve for product A can be most reasonably explained by saying that:

consumer preferences have changed in favor of A so that they now want to buy more at each possible price.

There will be a surplus of a product when:

consumers want to buy less than producers offer for sale.

An increase in the price of a product will reduce the amount of it purchased because: supply curves are upsloping.

consumers will substitute other products for the one whose price has risen.

If Z is an inferior good, an increase in money income will shift the:

demand curve for Z to the left.

If products A and B are complements and the price of B decreases, the:

demand for A will increase and the quantity of B demanded will increase.

The state legislature has cut Gigantic State University's appropriations. GSU's Board of Regents decides to increase tuition and fees to compensate for the loss of revenue. The board is assuming that the:

demand for education at GSU is inelastic.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:

demand has increased and equilibrium price has decreased.

Answer the question on the basis of the given supply and demand data for wheat: Refer to the data. If the price in this market was $4:

farmers would not be able to sell all their wheat.

A normal good is one:

for which the consumption varies directly with income.

In a cap-and-trade program:

government fixes the maximum amount of a pollutant that firms can discharge and issues permits that firms can buy from and sell to each other.

Refer to the competitive market diagram for product Z. Assume that the current market demand and supply curves for Z are D2 and S2. If there are substantial external costs associated with the production of Z, then:

government should levy a per-unit excise tax on Z to shift the supply curve toward S1.

Price elasticity of demand is generally:

greater in the long run than in the short run.

D = Demand, S = Supply, P = Price, Q = Quantity. Consider the market for good X. All else equal, an improvement in the technology used to produce X will:

increase S, decrease P, and increase Q.

The diagram concerns supply adjustments to an increase in demand (D1 to D2) in the immediate market period, the short run, and the long run. In the long run, the increase in demand will:

increase both equilibrium price and quantity.

The market system does not produce public goods because:

private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from them.

According to the Coase theorem:

private individuals can negotiate their own resolution of externality problems, without the need for government intervention.

Market failure is said to occur whenever:

private markets do not allocate resources in the most economically desirable way.

The law of supply indicates that, other things equal:

producers will offer more of a product at high prices than at low prices.

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:

raise their price and increase their quantity supplied.

Refer to the table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by:

reduced taste for the good.

An effective ceiling price will:

result in a product shortage.

An effective price floor on wheat will:

result in a surplus of wheat.

Refer to the diagram. A decrease in demand is depicted by a:

shift from D2 to D1.

Refer to the diagram. An increase in supply is depicted by a:

shift from S1 to S2.

Refer to the diagram. A decrease in supply is depicted by a:

shift from S2 to S1.

A decrease in the price of digital cameras will:

shift the demand curve for memory cards to the right.

If products C and D are close substitutes, an increase in the price of C will:

shift the demand curve of D to the right.

Refer to the diagrams for two separate product markets. Assume that society's optimal level of output in each market is Q0 and that government purposely shifts the market supply curve from S to S1 in diagram (a) on the left and from S to S2 in diagram (b) on the right. The shift of the supply curve from S to S2 in diagram (b) might be caused by a per-unit:

subsidy paid to the producers of this product.

In 2007, the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are:

substitute goods and the higher price for oil increased the demand for natural gas.

Since their introduction, prices of Blu-ray players have fallen and the quantity purchased has increased. This statement:

suggests that the supply of Blu-ray players has increased.

If government set a minimum price of $50 in the market, a:

surplus of 21 units would occur.

If price is above the equilibrium level, competition among sellers to reduce the resulting:

surplus will increase quantity demanded and decrease quantity supplied.

Refer to the diagram in which S is the market supply curve and S1 is a supply curve comprising all costs of production, including external costs. Assume that the number of people affected by these external costs is large. If the government wishes to establish an optimal allocation of resources in this market, it should:

tax producers so that the market supply curve shifts leftward (upward).

We would expect:

the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general.

Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus:

the demand for peanuts is inelastic.

If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then:

the demand for the product is elastic in the $6-$5 price range.

Graphically, the market demand curve is:

the horizontal sum of individual demand curves.

At the point where the demand and supply curves for a product intersect:

the quantity that consumers want to purchase and the amount producers choose to sell are the same.

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:

the substitution effect.

Supply-side market failures occur when:

the supply curve does not reflect the full cost of producing a good or service.

Refer to the table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9:

a surplus of 20 units would occur.

With a downsloping demand curve and an upsloping supply curve for a product, placing an excise tax on this product will:

increase equilibrium price and decrease equilibrium quantity.

The larger the coefficient of price elasticity of demand for a product, the:

smaller the resulting price change for an increase in supply.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by:

the development of more efficient machinery for producing this commodity.

The elasticity of demand for a product is likely to be greater:

the greater the amount of time over which buyers adjust to a price change.

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:

the income effect.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:

the increase in supply is larger in magnitude than the increase in demand.

By an "increase in demand," economists mean that:

the quantity demanded at each price in a set of prices is greater.

Productive efficiency refers to:

the use of the least-cost method of production. the production of the product mix most wanted by society.

At the equilibrium price:

there are no pressures on price to either rise or fall.

Nonexcludability describes a condition where:

there is no effective way to keep people from using a good once it comes into being.

A market:

is an institution that brings together buyers and sellers.