ECO Chapter 1-3

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Refer to the diagram. If this is a competitive market, price and quantity will move toward:

$40 and $150 respectively

(advanced analysis) The demand for commodity X is represented by the equation P=10-0.2Q and supply equation P=2+0.2Q. The equilibrium price for X is:

$6

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

$60

Which of the following would not shift the demand curve for beef

a reduction in the price of cattle feed

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 $6:

a shortage of 40 units would occur

Refer to the diagram. A price of $60 in this market will result in:

a surplus of 100 units

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

The term laissez-faire suggests that

government should not interfere with the operation of the economy.

A market is in equilibrium

if the amount producers want to sell is equal to the amount consumers want to buy.

When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes the:

income effect

the construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

price

The law of demand states that, other things equal:

price and quantity demanded are inversely related

The supply curve shows the relationship between

price and quantity supplied

In the circular flow diagram, firms get their ability to pay for the costs of production from the

revenues they receive for their products

Other things equal, if the price of a key resource used to produce product X falls, the

supply curve of product X will shift to the right

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

the price of the product itself

If there is a shortage of product X, and the price is free to change:

the price of the product will rise

If a price ceiling is set below the equilibrium price in a market

the quantity demanded will exceed the quantity supplied

Increasing marginal cost of production explains

why the supply curve is upsloping

At the equilibrium price

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

Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that:

Increases in the supply of computer memory have exceeded increases in demand

Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:

The supply to increase as farmers plant more corn

If two goods are complements:

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

The figure below shows three demand curves for coffee. Which of the following would cause a shift in coffee demanded from D1 to D3

a decrease in the price of tea

In the circular flow model, households earn their incomes in the

resource markets

The simple circular flow model show that workers and capital owners off their services to firms through the

resource markets

Economists use the term "demand" to refer to

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

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

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:

the income effect

The idea that the desires of resource supplies and firms to further their own self interest will automatically further the public interest is known as

the invisible hand

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

the price of the product itself

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 Nike soccer balls fell, Ronaldo purchased more Nike soccer balls and fewer adidas soccer balls. Which of the following best explains Ronaldos decision to buy more Nike soccer balls.

the substitution effect

When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes:

the substitution effect

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

is above the equilibrium level.

A market

is an institution that brings together buyers and sellers

The upward slope of the supply curve reflects the

law of supply

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

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

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

$.50

Refer to the diagram. The equilibrium price and quantity in this market will be:

$1 and $200

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

$1.60

Answer the question on the basis of the given supply and demand data for wheat. Equilibrium price will be

$2

Refer to the table. If demanded is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be

$9 and $60

(Advanced analysis) The demand for commodity X is represented by the equation P=10-0.2Q and supply by the equation P=2+0.2Q. The equilibrium quantity is

20

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. D2 and D3 and S2 and S3 are possible new demand and supply curves. Starting from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after an increase in wages of bicycle workers, a significant increase in the price of gasoline.

4

Refer to the above graph, which shows the market for bicycles. S1 and D1 are the original supply and demand curves. Stating from the initial equilibrium (point 1), which point on the graph is most likely to be the new equilibrium after the introduction of technological improvements in bicycle production and successful publicity campaigns by the government on the virtues of bicycling to work?

5

If the demand curve for product B shifts to the right as the price of product A declines, then:

A and B are complementary goods

Which of the diagrams illustrates the effect of a decline in the price of personal computers on the market for software.

A only

Which of the diagrams illustrates the effect of an decrease in income on the market for second hand clothing

A only

Which of the following statements is correct

A. An increase in the price of C will decrease the demand for complementary product D.

Which of the diagrams illustrates the effect of a decline in the price of irrigation equipment on the market for corn

C only

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

C only

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

It would create neither a shortage nor a surplus

Refer to the diagram. An effective government set price floor is best illustrated by

Price C

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

Surplus of 21 units would occur

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

The farmers would not be able to sell all their wheat

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

a change in buyer tastes

Which of the following will not cause the demand for product K to change

a change in the price of product K

If producers must obtain higher prices than before to produce a given level of output, then the following has occurred:

a decrease in supply

A surplus of a product will arise when price is:

above equilibrium with the result that quantity supplied exceeds quantity demanded.

Refer to the table. In relation to column (3), a change from column (4) to column (5) would most likely be caused by

an improvement in production technology

A recent study found that an increase in the federal tan on beer (which increase the price of beer) should reduce the demand for marijuana. Bases on this info. we can conclude that

beer and marijuana are complementary goods

According to the circular flow model, products markets are where

businesses earn their revenues from households

In the circular flow model of the market system, households major role is to

buy products and sell resources

With a downsloping demand curve and an upsloping supply curve for a product a decrease in resource prices will

decrease equilibrium price and increase equilibrium quantity

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 tas to

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

If product 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

Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that:

demand for clothing has grown faster than the supply of clothing

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

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 a 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

Running shoes and staplers are

independent goods.

Refer to the diagram. A decrease in quantity demanded is depicted by a

move from point y to point x

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

move from point y to point x

The law of supply indicates that, other things equal

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

An increase in product price will cause

quantity demanded to decrease.

If we say that a price is too high to clear the market, we mean that

quantity supplied exceeds quantity demanded

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

reduced taste for the good

In the circular flow model of the market system, business firms' major role is to

sell products and buy resources

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

shift from D2 to D1

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

shift from S2 to S1

An improvement in production technology will:

shift the supply curve to the right

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

Refer to the figure above, which shows three supply curves for corn. Which f the following would cause the supply of corn to shift from S1 to S2.

the development of a more effective insecticide against corn rootworm

Graphically, the market demand curve is

the horizontal sum of individual demand curves

If the price of Pepsi decreases, other factors constant, then we'd expect to see a consequent shift of the demand curve for:

Coke to the left

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

D only

Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market specified in the following situation: the market for leather coats, when leather coats become more fashionable among young consumers.

Graph A

Assume that the graphs show a competitive market for the product stated in the question. Select the graph above that best shows the change in the market specified in the following situation: the market for digital cameras, when the productivity of workers in the digital camera industry increases

Graph C

The circular flow model illustrates

The interdependence of businesses and consumers

Refer to the diagram. Flow 4 represents

consumer expenditures and business revenue

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

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

An increase in the price of a product will reduce the amount of it purchased because

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

Refer to the provided figure. If box A represents households, B the product market, and C business, and if flow (3) represents revenues, then flow (1) would represent

consumption expenditures

The relationship between quantity supplied and price is (blank), and the relationship between quantity demanded and price is (blank).

direct; inverse

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

increase equilibrium price and quantity

Refer to the table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):

increase in demand

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

A govern,net subsidy to the producers of a product

increases product supply

Refer to the diagram. a price of $20 in this market will result in a

shortage of 100 units

A leftward shift of a product supply curve might be caused by

some firms leaving an industry


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