ECON - Chapter 5 and 6

During World War II, the United States used rationing to a. limit production b. meet tremendous shortages c. give away goods d. stop the black market

b. meet tremendous shortages

A supply schedule is characterized by which of the following? a. It shows the quantity supplied at only one price. b. It shows the factors that could influence supply. c. It is sensitive to changes in the costs of labor and parts. d. It lists supply for a specific good.

d. It lists supply for a specific good.

how much of a good is offered for sale at a specific price

quantity supplied

a factor that can change

variable

legal maximum that can be charged for a good

a

What happens when a market is in disequilibrium and prices are flexible? a. Market forces push toward equilibrium. b. Sellers waste their resources. c. Excess demand is created. d. Unsold perishable goods are thrown out.

a. Market forces push toward equilibrium.

Farmer Brown has ten dairy cows. Her costs to feed the cows go up, although milk production remains the same. What effect will this rise in costs have on her supply? a. None, although she will raise prices to make up the lost revenue. b. Her supply will go down, because her fixed costs have risen. c. Her supply will go up, because she won't sell as much milk. d. Supply will remain the same, but she will have to sell more.

a. None, although she will raise prices to make up the lost revenue.

Suppose that you cannot buy a popular new video game because it has sold out in the stores you visited. What is the most likely scenario if you try to purchase the game again before the fad ends? a. The game's price will be higher, but some stores will have the game in stock. b. The game's price will be lower and demand for it will have risen. c. Both the game's price and demand for the game will have risen sharply. d. Both the game's price and demand for it will have fallen

a. The game's price will be higher, but some stores will have the game in stock.

What is the effect of import restrictions on supply? a. They cause the available supply of goods to drop. b. They cause the available supply of goods to rise. c. They often cause supply to rise steeply and then drop. d. They usually do not have any lasting effect on supply

a. They cause the available supply of goods to drop.

Which of the following is the best example of the law of supply? a. When the price of a sandwich rises, the sandwich shop increases the quantity supplied. b. A catering company buys a new dishwasher to make its work easier. c. A food producer increases the number of acres of wheat he grows to supply a milling company. d. A milling company builds a new factory to process flour to export

a. When the price of a sandwich rises, the sandwich shop increases the quantity supplied.

What prompts efficient resource allocation in a market system? a. business profits b. distribution according to need c. government regulation d. price ceilings

a. business profits

For which of the following goods is supply likely to be inelastic in the short term whether prices rise or fall? a. cargo ships b. haircuts c. newspapers d. staples

a. cargo ships

The price of home computers rises. According to the law of supply, manufacturers will respond to this price increase by a. increasing computer production. b. decreasing computer production. c. halting computer production. d. keeping computer production steady.

a. increasing computer production.

A sudden increase in fuel costs sparks a rise in both prices and demand for fuel-efficient cars. Yet it takes months for car companies to manufacture more cars. In this case, the supply for cars is a. inelastic. b. elastic. c. static. d. inferior.

a. inelastic.

In response to rising car traffic, demand for bicycles has increased. The new equilibrium point will show a. more bicycles sold, but at a higher price. b. fewer bicycles sold, but at a higher price. c. more bicycles sold, but at a lower price. d. fewer bicycles sold, but at a higher price

a. more bicycles sold, but at a higher price.

Which of the following could cause the supply curve of a good to shift to the right? a. new technology to produce the good b. raw materials shortage c. higher taxes on the good d. a minimum wage increase

a. new technology to produce the good

If the supply of a good is inelastic, a. producers will not change their quantity supplied by much if the market price doubles. b. a small increase in price will lead producers to sharply increase their quantity supplied. c. producers will increase their quantity supplied in response to sharp drops in the market price. d. producers have diminishing marginal returns of labor.

a. producers will not change their quantity supplied by much if the market price doubles.

Adam Smith wrote that producers are motivated to provide the goods people need by the a. profit incentive. b. nation's laws. c. desire to do good. d. supply curve.

a. profit incentive.

The price ceiling that was used to control the price of housing in New York City and other cities was called a. rent control. b. rent abatement. c. housing control. d. equilibrium price

a. rent control.

Fixed costs would include a. rent. b. labor. c. raw materials. d. heating fuel.

a. rent.

Why did the U.S. government use rationing for some foods and consumer goods during World War II? a. to guarantee each civilian a minimum standard of living in wartime b. to keep sellers from raising prices on necessary goods c. because the British government had also decided on rationing d. to earn more money to support the military

a. to guarantee each civilian a minimum standard of living in wartime

What is one reason European governments protect the growing of food with subsidies? a. to have food in case imports are ever restricted b. to allow the food producers to pay their debts c. to reduce the price of farm-grown food d. to help the population forget the food shortages after World War II

a. to have food in case imports are ever restricted

When is a market at equilibrium? a. when quantity demanded equals quantity supplied b. when unsold goods begin to pile up c. when prices equal the cost of production d. when suppliers begin to reduce prices

a. when quantity demanded equals quantity supplied

government-set price floor on earnings

b

To make 10 scooters, a company has fixed costs of $24, variable costs of $55, and marginal revenue of $30. In order to operate at the ideal level of output, the marginal costs of making 10 scooters should be a. $24. b. $30. c. $55. d. $54.

b. $30.

Use the graph below to answer questions 32 and 33. Students are publishing an annual literary magazine at their school. How many copies should they print and what price should they charge for each copy? a. 300 copies at $3 each b. 200 copies at $4 each c. 250 copies at $5 each d. 100 copies at $6 each

b. 200 copies at $4 each

The table shows the marginal product of labor at a shoe factory. In order to maximize marginal returns, how many workers should the factory have making these shoes? a. 2 b. 4 c. 6 d. 8

b. 4

What is the main principle of Adam Smith's The Wealth of Nations? a. Profits are made by selling people what they need. b. Business prospers by finding out what people want and providing it. c. People do not always get what they need. d. A price-based system provides few incentives for businesses.

b. Business prospers by finding out what people want and providing it.

Which of these best describes a supply curve? a. It always falls from left to right. b. It always rises from left to right. c. It rises if supply is elastic. d. It falls if supply decreases.

b. It always rises from left to right.

In general, what happens to the price of a good or service when a shortage of that good or service occurs? a. It remains unchanged while quantity demanded drops. b. It increases until quantity demanded equals quantity supplied. c. A price ceiling is imposed, lowering the price to meet the demaind. d. It decreases until quantity demanded equals quantity supplied.

b. It increases until quantity demanded equals quantity supplied.

How does new technology generally affect production? a. It lowers cost and decreases supply. b. It lowers cost and increases supply. c. It increases cost and decreases supply. d. It has very little effect on production.

b. It lowers cost and increases supply.

How does a firm respond to a higher demand for its goods? a. It rations goods. b. It raises prices. c. It cuts prices. d. There is no set response

b. It raises prices.

When government intervention causes the supply of a good to rise, what happens to the supply curve? a. It shifts to the left. b. It shifts to the right. c. It reverses direction. d. The supply curve is not affected.

b. It shifts to the right.

You have been asked to write a newspaper story for the financial section about how the restaurants in your city are doing. Based on the graph, which of the following headlines will you use? a. Wholesale Prices Stay Steady b. Restaurants Hit by Rising Costs c. High-End Restaurants Suffer d. Government Lifts Meal Tax

b. Restaurants Hit by Rising Costs

When the price of a product goes down, what happens ? a. Existing producers expand, and new producers enter the market. b. Some producers produce less, and others drop out of the market. c. Existing firms continue their usual output but earn less. d. New firms enter the market as older ones drop out.

b. Some producers produce less, and others drop out of the market.

If marginal cost becomes higher than price, what happens to a company? a. The company will go out of business. b. The company will lose money on each additional unit produced. c. Company specialization will lower the actual price charged. d. Diminishing marginal returns will shrink the production.

b. The company will lose money on each additional unit produced.

Which of the following is the best illustration of equilibrium? a. All the stores in a city that stock a certain model of plasma screen television are selling it for the same price of $899. b. The number of plasma screen televisions a store has for sale at $899 is the same as the number of its customers willing to buy one at that price. c. Some customers believe that $899 is too much to pay for a plasma screen television and decide to buy a lower-cost television instead. d. One store that sells plasma screen televisions for $999 lowers its price to $899 to match the price that other stores are charging.

b. The number of plasma screen televisions a store has for sale at $899 is the same as the number of its customers willing to buy one at that price.

How did an improvement in the technology for producing digital cameras affect supply? a. The supply curve moved to the left. b. The supply curve moved to the right. c. The demand curve moved to the right. d. The demand curve moved to the left.

b. The supply curve moved to the right.

How do price changes drive markets toward equilibrium? a. They set new price floors and ceilings. b. They increase or decrease supply or demand. c. They ensurethat prices are fair. d. They prevent inflation or deflation.

b. They increase or decrease supply or demand.

Which of the following actions by the government constitutes a subsidy? a. a price floor on wages b. a payment to farmers for not cultivating land c. an excise tax on cigarettes d. a requirement to use lead-free fuel

b. a payment to farmers for not cultivating land

If a supplier who has no control over the market price reports that the marginal revenue of a product is $10, that means a. the supplier makes $10 on every unit sold. b. consumers pay a market price of $10 per unit. c. it costs $10 to make each additional unit of the item. d. the total revenue before deducting costs is $10.

b. consumers pay a market price of $10 per unit.

How is the total cost of a factory or other production site determined? a. marginal cost plus fixed costs b. fixed costs plus variable costs c. marginal cost plus variable costs d. marginal cost plus output cost

b. fixed costs plus variable costs

Both individual and market supply schedules show possible combinations of a. goods and services. b. price and quantity supplied. c. volume and output. d. profits and income

b. price and quantity supplied.

In a free market, prices lead to an efficient allocation of resources. In other words, a. consumers can buy unlimited amounts of any good they like at a price of their choice. b. resources are used in the most valuable and productive way according to the desires of consumers and producers. c. the government decides who controls natural resources. d. people who own resources are unable to bargain with people who wish to buy resources.

b. resources are used in the most valuable and productive way according to the desires of consumers and producers.

Which of the following is an example of government influence on supply? a. law of supply b. subsidies c. marginal costs d. market supply curve

b. subsidies

What is the government's goal in buying excess crops or other agricultural products? a. to raise minimum wage b. to keep prices from going down c. to set legal price ceilings d. to lower prices

b. to keep prices from going down

point at which quantity demanded equals quantity supplied

c

Which of these events would indicate a movement along a supply curve for batteries? a. A new law requires battery manufacturers to spend more money on environmentally safe batteries. b. Workers at a major battery factory go on strike and stop production. c. Battery manufacturers raise the price of a package of AA batteries from $3.50 to $3.95. d. A new trade agreement enables stores to import foreign batteries.

c. Battery manufacturers raise the price of a package of AA batteries from $3.50 to $3.95.

Elena is looking for an apartment. Which of the following is an example of her search costs? a. Elena must pay the first and last months' rent before she can move into a new apartment. b. Elena pays movers $400 to help her transfer her belongings to the new apartment. c. Elena misses two days of work at the supermarket to visit several different apartments available for rent. d. Elena pays $300 to stay at a hotel for four nights before the apartment is ready.

c. Elena misses two days of work at the supermarket to visit several different

Big Publisher Inc. is considering using e-mail instead of shipping printed materials to its long-distance workers. How will this move affect Big Publisher Inc.? a. Costs will drop, but supply will remain the same. b. Supply and costs will probably both decrease. c. It should lower costs and increase supply. d. At first, supply will rise, but then it will decrease

c. It should lower costs and increase supply.

What will happen to price, supply, and demand when a surplus of a product develops? a. Price and demand will rise. At the same time, supply will fall. b. Price will rise. At the same time, supply and demand will fall. c. Price and supply will fall. At the same time, demand will rise. d. Price will fall. At the same time, demand and supply will rise.

c. Price and supply will fall. At the same time, demand will rise.

What effect do rising input costs have on the price of a good? a. The good becomes dependent on government regulation. b. The good becomes cheaper to produce. c. The good becomes more expensive to produce. d. It has no effect on the cost of the good.

c. The good becomes more expensive to produce.

How does the free market benefit from the profit incentive? a. The profit incentive is a signal to buy more of a good. b. The profit incentive contributes to the wealth of nations. c. The profit incentive promotes efficient resource allocation. d. The profit incentive leads to rationing.

c. The profit incentive promotes efficient resource allocation.

Suppose the market for the magazine is in equilibrium. Some students insist on raising the cover price by $1 and printing the same quantity. What is likely to happen? a. The demand for the magazine will go up. b. There will be a shortage of 150 magazines. c. There will be a surplus of 100 magazines. d. The surplus will be greater than their sales.

c. There will be a surplus of 100 magazines.

What condition must be present before a product's price will naturally move toward its equilibrium price? a. price floors b. high taxes c. a free market d. rationing

c. a free market

In 1971 the American economy was suffering from a rapid increase in the cost of living. To combat this trend, the government temporarily froze all wages and prices. This action by the government is an example of a. rationing. b. disequilibrium. c. a price ceiling. d. a price floor.

c. a price ceiling.

Gerda owns a grocery store. When decreasing prices force her to cut costs, one of the first things she does is a. stop paying her property taxes. b. cut her rent costs in half. c. decrease hours for some workers. d. stop selling perishable foods

c. decrease hours for some workers.

What condition has been reached when buyers purchase exactly as much as sellers are willing to sell? a. supply and demand b. shortage c. equilibrium d. price floor

c. equilibrium

Ruth runs a bakery whose supply is highly elastic. When the price of baked goods falls, Ruth will a. close the bakery and open a store that sells perfume. b. try to find a way to increase prices again. c. make up the lost revenue by cutting production costs. d. increase production to balance the loss of profit

c. make up the lost revenue by cutting production costs.

A sports equipment company increases its production of volleyballs. It costs the company $4.00 to make 10 volleyballs and $4.10 to make 11 volleyballs. This 10 cent difference is an example of a. fixed cost. b. variable cost. c. marginal cost. d. total cost.

c. marginal cost.

Advances in technology have reduced the cost of manufacturing MP3 players. If demand does not change, a. more MP3 players will be sold at a higher price. b. fewer MP3 players will be sold at a higher price. c. more MP3 players will be sold at a lower price. d. fewer MP3 players will be sold at a lower price.

c. more MP3 players will be sold at a lower price.

Which of the following is most likely to lead directly to a black market? a. a supply shock b. a price floor c. rationing d. equilibrium

c. rationing

How does a manufacturer set total output to maximize profit? a. set production so that total revenue plus cost is greatest b. set production at the point where marginal revenue is smallest c. set production at the point where marginal revenue equals marginal cost d. set production so that marginal revenue and profit are the same

c. set production at the point where marginal revenue equals marginal cost

What do sellers do if they expect the price of their goods to increase dramatically in the near future? a. sell the goods now and try to invest the money instead of resupplying b. sell the goods now but try to get the higher price for them c. store the goods until the price rises d. store the goods indefinitely regardless of when the price rises

c. store the goods until the price rises

If a seller expects the price of a good to rise in the future, the seller will a. place these goods on the market immediately. b. increase production of the good. c. store these goods until the price goes up. d. increase the price of the good now

c. store these goods until the price goes up.

Why does a government place price ceilings, such as rent control, on some "essential" goods? a. to prevent inflation during boom times b. to keep business people from making large profits c. to keep the goods from becoming too expensive d. to reduce demand for these goods

c. to keep the goods from becoming too expensive

Which of the following is the correct mathematical formula for calculating average cost? a. total revenue divided by market price b. total cost divided by variable cost c. total cost divided by quantity produced d. total revenue divided by marginal cost

c. total cost divided by quantity produced

How did the market react to an increased supply of digital cameras? a. Suppliers struggled to keep up with consumer demand for cameras. b. Manufacturers produced fewer cameras. c. Suppliers increased prices on the cameras. d. A surplus of cameras forced suppliers to reduce prices.

d. A surplus of cameras forced suppliers to reduce prices.

Why do fads often lead to shortages, at least in the short term? a. Buyers and sellers are unable to agree on a price for the good. b. Laws prevent stores from responding to excess demand in time to prevent a shortage. c. Manufacturers charge such high prices for the goods that stores are unwilling to pay. d. Demand increases too quickly and unexpectedly for the supply to keep up.

d. Demand increases too quickly and unexpectedly for the supply to keep up.

What happens after the demand for a fad drops? a. The quantity supplied goes down, and the price goes up. b. The quantity supplied and the price both go up. c. Shortage makes the good difficult to obtain. d. Excess supply makes the good easy to obtain.

d. Excess supply makes the good easy to obtain.

Which newspaper headline will most likely shift the demand curve for flu shots to the right? a. New Inhaler Protects Against Flu Without Shot b. Contaminated Flu Vaccine Sickens Recipients c. Suppliers Produce a Surplus of Flu Vaccine d. Health Experts Predict Severe Flu Season Ahead

d. Health Experts Predict Severe Flu Season Ahead

A steel mill has fixed costs of $100 per hour and variable costs of $50 per hour. What will happen to these costs if the mill closes? a. Both fixed and variable costs will remain the same even if output halts. b. The mill will no longer incur any costs because it will no longer be operating. c. The fixed costs will decrease, but the variable costs will increase. d. The variable costs will drop to zero, but the fixed costs will stay the same

d. The variable costs will drop to zero, but the fixed costs will stay the same

Ultimately, the main factor that drives decisions about production is the a. availability of natural resources. b. government regulations and rules. c. public need for better goods. d. desire to maximize profits.

d. desire to maximize profits.

Which of the following factors is likely to have had the greatest impact on the change in supply shown in the graph? a. lifting of import bans b. new technology for freezing food c. government farm subsidies d. high global demand for fuel

d. high global demand for fuel

When would it make sense for a factory that is losing money to remain in operation? a. if marginal revenue is equal to marginal cost b. if the total cost of the goods being manufactured exceeds the operating cost c. if the marginal product of labor becomes negative d. if the total revenue from the goods being produced exceeds the operating cost

d. if the total revenue from the goods being produced exceeds the operating cost

Which traffic signal best represents the message that providers of cable services receive from declining customer subscriptions? a. no U-turn b. yellow light c. green light d. red light

d. red light

A shortage will develop when a. the quantity of a good that is supplied is greater than the quantity demanded. b. the discovery of new technology reduces production costs. c. the government provides subsidies to producers. d. the market price is below the equilibrium price.

d. the market price is below the equilibrium price.

When the eighth worker is hired, the marginal product of labor becomes negative. This is because a. the workers are making more shoes than the demand. b. the need for a greater supply of shoes has decreased. c. there are fewer workers available to make more shoes. d. there are more workers than are needed, disrupting output.

d. there are more workers than are needed, disrupting output.

On which kinds of goods do governments generally place price ceilings? a. those that are cheap but could become more expensive without the ceiling b. those that are not necessary but have become customary c. those that are essential and cheap d. those that are essential but too expensive for some consumers

d. those that are essential but too expensive for some consumers

when quantity demanded is more than quantity supplied

e

a measure of how suppliers react to a change in price

elasticity of supply

when quantity supplied is greater than quantity demanded

g

when quantity supplied is not equal to quantity demanded

h

the principle that the higher the price, the larger the quantity produced

law of supply

relationship between price and total quantity supplied by all firms

market supply schedule

a graphical representation of a supply schedule

supply curve