Macroeconomics 3.3 Studyguide

33) What is the difference between a market equilibrium and a competitive market equilibrium?

Answer: A market equilibrium is a situation in which quantity demanded equals quantity supplied. A competitive market equilibrium is a market equilibrium with many buyers and sellers.

32) What is a surplus? What is a shortage?

Answer: A surplus is a situation in which the quantity supplied is greater than the quantity demanded. A shortage is a situation in which the quantity demanded is greater than the quantity supplied.

34) In much of Europe, the legal age to obtain a driverȇs license is 18. If the legal driving age in the United States was changed to 18, how would this affect the market for new automobiles? The market for automobile insurance?

Answer: The demand for new automobiles would decrease, as would the demand for automobile insurance.

1) At market equilibrium, A) demand equals supply. B) quantity demanded equals quantity supplied. C) surpluses are greater than shortages. D) shortages are greater than surpluses.

B

25) If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal? A) The supply of Lincoln letters would have to be less than the supply of Booth letters. B) The supply of Booth letters would have to be less than the supply of Lincoln letters. C) The supply of Lincoln letters and the supply of Booth letters would have to be equal. D) If the demand for Lincoln letters is greater than the demand for Booth letters, the market equilibrium price for Lincoln letters will always be greater than the market equilibrium price for Booth letters

B

17) Assume there is a surplus in the market for hybrid automobiles.ȱȱWhich of the following statements correctly describes this situation? A) The supply of hybrid automobiles is greater than the demand for hybrid automobiles. B) Some consumers will be unable to obtain hybrid automobiles at the market price and will have an incentive to offer to buy the product at a higher price. C) The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease. D) the surplus will cause an increase in the equilibrium price of hybrid automobiles.

C

18) Which of the following describes a characteristic of a perfectly competitive market? A) There are many buyers but few sellers. B) There are many sellers but few buyers. C) There are many buyers and sellers. D) Equilibrium is achieved when demand for the product sold in the market equals the supply

C

4) Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see A) a surplus of gasoline. B) the quantity demanded equal to the quantity supplied. C) a shortage of gasoline. D) an increase in the demand for gasoline.

C

2) At a productȇs equilibrium price A) anyone who needs the product will be able to buy the product, regardless of ability to pay. B) the federal government will provide the product to anyone who cannot afford it. C) not all sellers who are willing to accept the price will find buyers for their products. D) any buyer who is willing and able to pay the price will find a seller for the product.

D

22) If the quantity demanded for a product exceeds the quantity supplied, the market price will rise until A) the quantity demanded equals the quantity supplied.ȱȱThe product will then no longer be scarce. B) quantity demanded equals quantity supplied.ȱȱThe equilibrium price will then be greater than the market price. C) only wealthy consumers will be able to afford the product. D) quantity demanded equals quantity supplied.ȱȱThe market price will then equal the equilibrium price.

D

23) Which of the following is evidence of a shortage of chocolate? A) Firms lower the price of chocolate. B) The price of chocolate is raised in order to increase sales. C) The equilibrium price of chocolate falls due to a decrease in demand. D) The quantity of chocolate demanded is greater than the quantity supplied.

D

24) Even when the demand for one good is high, the price of the good is also affected by supply. The textbook illustrates this by comparing the price of two items that were auctioned on the same day.ȱȱWhich of the following describes the results of the auction? A) A letter written by Abraham Lincoln sold for a higher price than a letter written by John Wilkes Booth. B) A letter written by Abraham Lincoln was sold for a higher price than a letter written by Adam Smith. C) A letter written by John Wilkes Booth sold for a higher price than a letter written by Lee Harvey Oswald. D) A letter written by John Wilkes Booth sold for a higher price than a letter written by Abraham Lincoln.

D

27) In response to a shortage the market price of a good will rise; as the price rises, the demand will decrease and supply will increase until equilibrium is reached.

FALSE

29) A surplus occurs when the market price is lower than the equilibrium price.

FALSE

30) It is possible for a market for a good to experience a surplus and a shortage at the same time.

FALSE

26) Competitive market equilibrium is a market equilibrium with many buyers and sellers.

TRUE

28) A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

TRUE

31) Market equilibrium occurs where the quantity supplied is equal to the quantity demanded.

TRUE