Chapter 3 Micro-Economics (Supply & Demand)

If the demand for steak (a normal good) shifts to the left, the most likely reason is that: ---------------------------------------------------------------- A. Consumer incomes have fallen. B. Cattle production has declined. C. The price of steak has risen. D. The price of cattle feed has gone up.

A. Consumer incomes have fallen.

A surplus of a product will arise when price is: ----------------------------------------------------- A. Above equilibrium, with the result that quantity demanded exceeds quantity supplied. B. Above equilibrium, with the result that quantity supplied exceeds quantity demanded. C. Below equilibrium, with the result that quantity demanded exceeds quantity supplied. D. Below equilibrium, with the result that quantity supplied exceeds quantity demanded.

B. Above equilibrium, with the result that quantity supplied exceeds quantity demanded.

An effective price floor will: --------------------------------- A. Force some firms in this industry to go out of business. B. Result in a product surplus. C. Result in a product shortage. D. Clear the market.

B. Result in a product surplus.

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. The price of the product will rise.

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. Amount of oranges that will be available at various prices has declined.

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. ----------------------------------------------------------------- Refer to the given information. A decrease in the number of consumers of product X will: ----------------------------------------------------------------- A. Decrease S, decrease P, and decrease Q. B. Increase D, increase P, and increase Q. C. Decrease D, decrease P, and decrease Q. D. Decrease D, decrease P, and increase Q.

C. Decrease D, decrease P, and decrease Q.

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. Decrease, quantity demanded will increase, and quantity supplied will decrease.

A market is in equilibrium: ------------------------------ A. Provided there is no surplus of the product. B. At all prices above that shown by the intersection of the supply and demand curves. C. If the amount producers want to sell is equal to the amount consumers want to buy. D. Whenever the demand curve is downsloping and the supply curve is upsloping.

C. If the amount producers want to sell is equal to the amount consumers want to buy.

A market-based system of buying and selling human organs for transplant would: ---------------------------------------------------------------- A. Reduce total health care spending. B. Create a surplus of organs. C. Increase the quantity of organs available for transplant. D. Reduce the price of organs.

C. Increase the quantity of organs available for transplant.

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

True or False: A ceiling price in a competitive market will result in persistent surpluses of a product.

False

True or False: A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level.

False

True or False: A market that achieves productive efficiency is producing the quantity of goods most desired by society.

False

True or False: A price floor in a competitive market will result in persistent shortages of a product.

False

True or False: An increase in quantity supplied might be caused by an increase in production costs.

False

True or False: If market demand increases and market supply decreases, the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes.

False

True or False: Producing a good in the least costly way is known as allocative efficiency.

False

True or False: Surpluses drive market prices up; shortages drive them down.

False

True or False: The rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market.

False

True or False: Toothpaste and toothbrushes are substitute goods.

False

True or False: A government subsidy per unit of output increases supply.

True

True or False: A government tax per unit of output reduces supply.

True

True or False: A market that is achieving allocative efficiency must also be achieving productive efficiency.

True

True or False: An increase in demand accompanied by an increase in supply will increase the equilibrium quantity, but the effect on equilibrium price will be indeterminate.

True

True or False: Consumers buy more of normal goods as their incomes rise.

True

True or False: If demand increases and supply simultaneously decreases, equilibrium price will rise.

True

True or False: In a competitive market, every consumer willing to pay the market price can buy a product and every producer willing to sell the product at that price can sell it.

True