ECON CH3

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

A

Assuming conventional supply and demand curves, changes in the determinants of supply and demand will: A. in all likelihood alter both equilibrium price and quantity. B. alter equilibrium quantity, but not equilibrium price. C. alter equilibrium price, but not equilibrium quantity. D. have no effect on equilibrium price or quantity.

A

Markets explained on the basis of supply and demand: A. assume many buyers and many sellers of a standardized product. B. assume market power so that buyers and sellers bargain with one another. C. do not exist in the real-world economy. D. are approximated by markets in which a single seller determines price.

A

Other things equal, if the price of a key resource used to produce product X falls, the: A. product supply curve of X will shift to the right. B. product demand curve of X will shift to the right. C. product supply curve of X will shift to the left. D. product demand curve of X will shift to the left.

A

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

A

A decrease in the demand for recreational fishing boats might be caused by an increase in the: A. income of sports fishers. B. price of outboard motors. C. size and number of fish available. D. price of sailing boats.

B

A government subsidy to the producers of a product: A. reduces product supply. B. increases product supply. C. reduces product demand. D. increases product demand.

B

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

B

At the equilibrium price: A. quantity supplied may exceed quantity demanded or vice versa. B. there are no pressures on price to either rise or fall. C. there are forces that cause price to rise. D. there are forces that cause price to fall.

B

By an increase in demand we mean that : A. product price has fallen so consumers move down to a new point on the demand curve. B. the quantity demanded at each price in a set of prices is greater. C. the quantity demanded at each price in a set of prices is smaller. D. a leftward shift of the demand curve has occurred.

B

Digital cameras and memory cards are: A. substitute goods. B. complementary goods. C. independent goods. D. inferior goods.

B

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

B

In constructing a stable demand curve for product X: A. consumer preferences are allowed to vary. B. the prices of other goods are assumed constant. C. money incomes are allowed to vary. D. the supply curve of product X is assumed to be fixed.

B

One can say with certainty that equilibrium price will decline when supply: A. and demand both decrease. B. increases and demand decreases. C. decreases and demand increases. D. and demand both increase.

B

Other things equal, which of the following might shift the demand curve for gasoline to the left? A. the discovery of vast new oil reserves in Montana B. the development of a low-cost electric automobile C. an increase in the price of train and air transportation D. a large decline in the price of automobiles

B

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

B

The income and substitution effects account for: A. the upward sloping supply curve. B. the downward sloping demand curve. C. movements along a given supply curve. D. the "other things equal" assumption.

B

The upward slope of the supply curve reflects the: A. principle of specialization in production. B. law of supply. C. fact that price and quantity supplied are inversely related. D. law of diminishing marginal utility.

B

Which of the following statements is correct? A. If demand increases and supply decreases, equilibrium price will fall. B. If supply increases and demand decreases, equilibrium price will fall. C. If demand decreases and supply increases, equilibrium price will rise. D. If supply declines and demand remains constant, equilibrium price will fall.

B

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

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

At the point where the demand and supply curves intersect: A. the buying and selling decisions of consumers and producers are inconsistent with one another. B. the market is in disequilibrium. C. there is neither a surplus nor a shortage of the product. D. quantity demanded exceeds quantity supplied.

C

Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that: A. the demand for oranges will necessarily rise. B. the equilibrium quantity of oranges will rise. C. the amount of oranges that will be available at various prices has declined. D. the price of oranges will fall.

C

Graphically, the market demand curve is: A. steeper than any individual demand curve that is part of it. B. greater than the sum of the individual demand curves. C. the horizontal sum of individual demand curves. D. the vertical sum of individual demand curves.

C

If L and M are complementary goods, an increase in the price of L will result in: A. an increase in the sales of L. B. no change in either the price or sales of M. C. a decrease in the sales of M. D. an increase in the sales of M.

C

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

C

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

C

Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements: A. suggest that the demand for Mustangs decreased between 2007 and 2008. B. suggest that the supply of Mustangs must have increased between 2007 and 2008. C. suggest that the demand for Mustangs increased between 2007 and 2008. D. constitute an exception to the law of demand in that they suggest an upsloping demand curve.

C

A product market is in equilibrium: A. when there is no surplus of the product. B. when there is no shortage of the product. C. when consumers want to buy more of the product than producers offer for sale. D. where the demand and supply curves intersect.

D

An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the: A. demand curve for cigarettes rightward. B. demand curve for cigarettes leftward. C. supply curve for cigarettes rightward. D. supply curve for cigarettes leftward.

D

If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left. B. supply curve for X to the right. C. demand curve for X to the left. D. demand curve for X to the right.

D

In moving along a stable supply curve which of the following is not held constant? A. the number of firms producing this good B. expectations about the future price of the product C. techniques used in producing this product D. the price of the product for which the supply curve is relevant

D

In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by: A. an increase in the cost of making donuts. B. an increase in the price of coffee. C. consumers expecting donut prices to fall. D. a change in buyer tastes.

D

The demand curve for a product might shift as the result of a change in: A. consumer tastes. B. consumer incomes. C. the prices of related goods. D. all of these.

D

With a downsloping demand curve and an upsloping supply curve for a product, placing an excise tax on this product will: A. increase equilibrium price and quantity. B. decrease equilibrium price and quantity. C. decrease equilibrium price and increase equilibrium quantity. D. increase equilibrium price and decrease equilibrium quantity.

D

An increase in product price will cause: A. quantity demanded to decrease. B. quantity supplied to decrease. C. quantity demanded to increase. D. the supply curve to shift to the left.

A

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: A. increase the supply of B and increase the demand for C. B. decrease the supply of B and increase the demand for C. C. decrease the supply of B and decrease the demand for C. D. increase the supply of B and decrease the demand for C.

A

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

A

When an economist says that the demand for a product has increased, this means that: A. consumers are now willing to purchase more of this product at each possible price. B. the product has become particularly scarce for some reason. C. product price has fallen and as a consequence consumers are buying a larger quantity of the product. D. the demand curve has shifted to the left.

A

With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will: A. increase equilibrium price and quantity if the product is a normal good. B. decrease equilibrium price and quantity if the product is a normal good. C. have no effect on equilibrium price and quantity. D. reduce the quantity demanded, but not shift the demand curve.

A

Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterol B. a reduction in the price of cattle feed C. an effective advertising campaign by pork producers D. a change in the incomes of beef consumers

B

Allocative efficiency involves determining: A. which output-mix will result in the most rapid rate of economic growth. B. which production possibilities curve reflects the lowest opportunity costs. C. the mix of output that will maximize society's satisfaction. D. the optimal rate of technological progress.

C

An increase in the price of a product will reduce the amount of it purchased because: A. supply curves are upsloping. B. the higher price means that real incomes have risen. C. consumers will substitute other products for the one whose price has risen. D. consumers substitute relatively high-priced for relatively low-priced products.

C

Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained: A. by small annual increases in supply accompanied by large annual increases in demand. B. in terms of a stable supply curve and increasing demand. C. in terms of a stable demand curve and increasing supply. D. as an exception to the law of supply.

C

The demand curve shows the relationship between: A. money income and quantity demanded. B. price and production costs. C. price and quantity demanded. D. consumer tastes and the quantity demanded.

C

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

C

When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n): A. increase in the demand for gasoline. B. decrease in the demand for gasoline. C. increase in the supply of gasoline. D. decrease in the supply of gasoline.

C

The location of the supply curve of a product depends on: A. the technology used to produce it. B. the prices of resources used in its production. C. the number of sellers in the market. D. all of these.

D

There will be a surplus of a product when: A. price is below the equilibrium level. B. the supply curve is downward sloping and the demand curve is upward sloping. C. the demand and supply curves fail to intersect. D. consumers want to buy less than producers offer for sale.

D

When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products. This describes: A. the cost effect. B. the price effect. C. the income effect. D. the substitution effect.

D