Macroeconomics, Chapter 3

Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for second-hand clothing? A) A only B) A and C C) B only D) C only

A) A only

Which of the following will not cause the demand for product K to change? A) a change in the price of product K B) a change in the price of close-substitute product J C) a change in consumer tastes for product K D) an increase in incomes of buyers of product K

A) a change in the price of product K

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) bicycles are normal goods. B) there are few goods that are substitutes for bicycles. C) there are many goods that are substitutes for bicycles. D) there are many goods that are complementary to bicycles.

A) bicycles are normal goods.

At the current price, there is a shortage of a product. We would expect price to A) increase, quantity demanded to decrease, and quantity supplied to increase. B) increase, quantity demanded to increase, and quantity supplied to increase. C) increase, quantity demanded to increase, and quantity supplied to decrease. D) decrease, quantity demanded to increase, and quantity supplied to decrease.

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

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) reducing the concavity of the production possibilities curve. D) producing every good with the least-cost combination of inputs.

A) producing the combination of goods most desired by society.

An effective price ceiling will A) result in a product shortage. B) induce new firms to enter the industry. C) clear the market. D) result in a product surplus.

A) result in a product shortage.

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 income effect. B) the substitution effect. C) a rightward shift in the demand curve for hamburgers. D) the price effect.

A) the income effect.

When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls? A) the substitution effect B) an increase in the demand for Nike soccer balls C) the income effect D) the price effect

A) the substitution effect

Productive efficiency refers to A) the use of the least-cost method of production. B) production at some point inside of the production possibilities curve. C) the production of the product mix most wanted by society. D) the full employment of all available resources.

A) the use of the least-cost method of production.

Increasing marginal cost of production explains A) why the supply curve is upsloping. B) why the demand curve is downsloping. C) the income effect. D) the law of demand.

A) why the supply curve is upsloping.

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) the substitution effect B) diminishing marginal utility C) the rationing function of prices D) the income effect

B) diminishing marginal utility

The relationship between quantity supplied and price is ________, and the relationship between quantity demanded and price is ________. A) inverse; inverse B) direct; inverse C) inverse; direct D) direct; direct

B) direct; inverse

One reason that the quantity demanded of a good increases when its price falls is that the A) price decline shifts the supply curve to the left. B) lower price increases the real incomes of buyers, enabling them to buy more. C) lower price shifts the demand curve to the right. D) lower price shifts the demand curve to the left.

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

If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium A) price must rise and equilibrium quantity must fall. B) price must rise, but equilibrium quantity may rise, fall, or remain unchanged. C) price and equilibrium quantity must both increase. D) price and equilibrium quantity must both decline.

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

The law of supply indicates that, other things equal, A) producers will offer more of a product at low prices than at high prices. B) producers will offer more of a product at high prices than at low prices. C) consumers will purchase less of a good at high prices than at low prices. D) the product supply curve is downsloping.

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

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

B) quantity supplied exceeds quantity demanded.

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) fall, 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) 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.

An improvement in production technology will A) shift the supply curve to the left. B) shift the supply curve to the right. C) shift the demand curve to the left. D) increase equilibrium price.

B) shift the supply curve to the right.

If the price of product L increases, the demand curve for close-substitute product J will A) shift downward toward the horizontal axis. B) shift to the right. C) remain unchanged. D) shift to the left.

B) shift to the right.

In which of the following statements are the terms "demand" and "quantity demanded" used correctly? A) When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell. B) When the price of ice cream rose, the demand for ice cream fell, and the quantity demanded of ice cream toppings fell. C) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell. D) None of these statements use the terms correctly.

C) When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.

If two goods are complements, A) they are consumed independently. B) they are necessarily inferior goods. C) a decrease in the price of one will increase the demand for the other. D) 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.

A surplus of a product will arise when price is A) below equilibrium, with the result that quantity supplied exceeds quantity demanded. B) below equilibrium, with the result that quantity demanded exceeds quantity supplied. C) above equilibrium, with the result that quantity supplied exceeds quantity demanded. D) above equilibrium, with the result that quantity demanded exceeds quantity supplied.

C) above equilibrium, with the result that quantity supplied exceeds quantity demanded.

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

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

An effective price floor will A) clear the market. B) force some firms in this industry to go out of business. C) result in a product surplus. D) result in a product shortage.

C) result in a product surplus.

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

C) the price of the product will rise.

Which of the diagrams illustrates the effect of an increase in automobile worker wages on the market for automobiles? A) A only B) B only C) C only D) D only

D) D only

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

D) an increase in money income if A is an inferior good

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) marijuana is an inferior good. B) beer is an inferior good. C) beer and marijuana are substitute goods. D) beer and marijuana are complementary goods.

D) beer and marijuana are complementary goods.

An increase in the price of a product will reduce the amount of it purchased because A) the higher price will signal to consumers that the good is of low quality. B) the higher price means that real incomes have risen. C) consumers substitute relatively high-priced for relatively low-priced products. D) consumers will substitute other products for the one whose price has risen.

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

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

D) decrease, quantity demanded will increase, and quantity supplied will decrease.

In the following question you are asked to determine, other things equal, the effects of a 17) 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. If X is a normal good, an increase in income will A) increase S, increase P, and increase Q. B) decrease D, increase P, and increase Q. C) increase D, increase P, and decrease Q. D) increase D, increase P, and increase Q.

D) increase D, increase P, and increase Q.

College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are A) normal goods. B) complementary goods. C) substitute goods. D) inferior goods.

D) inferior goods.

If there is a surplus of a product, its price A) will rise in the near future. B) is in equilibrium. C) is below the equilibrium level. D) is above the equilibrium level.

D) is above the equilibrium level.

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

D) price and quantity demanded are inversely related

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

D) some firms leaving an industry.

Other things equal, if the price of a key resource used to produce product X falls, the A) supply curve of product X will not shift. B) demand curve of product X will shift to the right. C) supply curve of product X will shift to the left. D) supply curve of product X will shift to the right.

D) supply curve of product X will shift to the right.

Which of the following would most likely increase the demand for gasoline? A) the expectation by consumers that gasoline prices will be lower in the future B) a decrease in the price of public transportation C) a widespread shift in car ownership from SUVs to hybrid sedans D) the expectation by consumers that gasoline prices will be higher in the future

D) the expectation by consumers that gasoline prices will be higher in the future

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) the substitution effect. B) an inferior good C) the rationing function of prices. D) the income effect.

D) the income effect.