Practice Questions: Lecture 4

Suppose that the technology used to manufacture laptops has improved. The likely result would be:

an increase in supply of laptops.

An outcome is socially optimal if it:

maximizes total economic surplus.

The market supply curve illustrates the fact that sellers tend to sell

more of a good as its price decreases.

The Equilibrium Principle asserts that in a market equilibrium:

no unexploited opportunities exist for individuals .

Suppose sport utility vehicles get poor gas mileage compared to other available cars. If the price of gasoline increases, then one would then expect:

the demand for sport utility vehicles to decrease.

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:

complements

If an increase in the price of good X leads to a decrease in the demand for good Y, then:

good X and good Y are complements.

Shelly purchases a leather purse for $400. One can infer that:

her reservation price was at least $400.

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:

the wage for teachers in that district is lower than the equilibrium wage.

If supply and demand both increase, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; higher

If supply and demand both decrease, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; lower

Excess demand occurs:

when price is below the equilibrium price.

For two goods, X and Y, to be classified as substitutes, it must be the case that:

when the price of X rises, the demand for Y increases.

A price ceiling that is set above the equilibrium price:

will have no effect on the market.

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas:

it likely to cause the price you pay for gas to increase.

If pencils and paper are complements for most consumers, then if the price of paper increases, you would expect:

the equilibrium price and quantity of pencils to fall

Refer to the figure above. If demand shifts from D1 to D2, and at the same time, supply shifts from S1 to S2, then according to the figure:

the equilibrium quantity will increase and the equilibrium price will increase.

If there are no unexploited opportunities for individuals in a particular market, then one can conclude that:

the market is in equilibrium.

An increase in the quantity of tea demanded occurs if:

the price of the tea falls.

If the price of rubber (an input to the production of tires) increases:

the supply of tires will decrease.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was: A. $195

$10

Which of the following factors will lead to a decrease in supply?

A belief that the price of a good or service will go up in the future

Refer to the figure below. What might cause shift from the original supply curve to the new supply curve?

A new technology that reduces amount of coffee needed to make a good cup of coffee.

Suppose Bianca buys a used a textbook from Sebastian for $55. If Bianca's surplus from this transaction was $10, we can infer that:

Bianca's reservation price was $65.

The tendency of markets to automatically gravitate toward equilibrium is an application of the:

Incentive Principle

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

Joe and Mary can make a mutually beneficial exchange.

Which of the following is NOT a characteristic of a market in equilibrium?

Neither buyers nor sellers want the price to change.

Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?

No single person's benefit from cleaning the park exceeds that person's cost of cleaning it.

A movement along a demand curve from one price-quantity combination to another is called:

a change in quantity demanded.

Suppose the equilibrium price and quantity of ketchup fall. The most likely explanation for these changes is:

a decrease in the demand for ketchup.

Suppose that the equilibrium price of french fries rises while the equilibrium quantity falls. The most likely explanation for these changes is:

a decrease in the supply of french fries.

Refer to the figure below. An increase in supply is represented by a shift from:

curve A to curve B.

Refer to the figure below. A decrease in supply is represented by a shift from:

curve B to curve A.

Suppose that both the supply of iPads and the demand for iPads decrease. One can predict that the:

equilibrium quantity will fall, but the change in equilibrium price is uncertain.

When the demand curve shifts to the right and supply doesn't change:

equilibrium quantity will rise.

The situation described in the book as "smart for one, dumb for all" occurs when:

individuals make better decisions when they are alone than when they are part of a group.

The market equilibrium quantity:

is sometimes the socially optimal quantity

A buyer's reservation price of a particular good or service is the:

largest price the buyer would be willing to pay for it.

If the price of doughnuts decreases, then one would expect the:

quantity of doughnuts supplied to decrease.

If there is an excess supply of sport utility vehicles, then:

quantity supplied is greater than quantity demanded.

Efficiency occurs if the:

socially optimal quantity of goods and services is being produced.

A market equilibrium might not maximize total economic surplus because:

sometimes goods entail costs and benefits that do not fall on buyers and sellers.

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

substitutes

Refer to the figure below. Suppose the solid line shows the demand for coffee. If coffee and tea are substitutes, and the price of tea falls, then you would expect:

the demand curve to shift to D(A).

When the supply curve shifts to the left and there is no change in demand:

the equilibrium price will rise.

A seller's reservation price is generally equal to:

the seller's marginal cost.

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______.

$6; 4

If price is above the equilibrium price, then there will be:

excess supply.

A market equilibrium: 1

might not maximize total economic surplus.

Refer to the figure below. A decrease in demand is represented by a shift from:

curve D to curve C.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the total economic surplus from this transaction was:

$30

Refer to the figure below. At the original market equilibrium:

40 cups are sold per hour at a price of $2.00 each.

Refer to the figure below. What might cause a shift from the original demand curve to the new demand curve?

An increase in consumers' tastes for coffee.

What might cause a demand curve to shift to the right?

An increase in the price of a substitute.

Which of the following is likely to lead to a decrease in the demand for tennis balls?

An increase in the price of tennis racquets.

Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?

Both the purchase at the University ticket window and the sale at the concert entrance were market transactions.

An individual consumer's demand curve illustrates:

The consumer's reservation price for each unit of the good. The maximum price the consumer would pay for each unit of the good. How much of the good the buyer would like to purchase at every possible price. All of the above

Assume the demand for coffee increases and the supply of coffee decreases. Which of the following outcomes is certain to occur?

The equilibrium price of coffee will rise.

Assume the demand for sugar decreases and the supply of sugar increases. Which of the following outcomes is certain to occur?

The equilibrium price of sugar will fall.

An individual seller's supply curve illustrates:

The seller's reservation price for each unit of the good. The minimum price the seller would accept for each unit of the good. The marginal cost of producing each unit of the good How much of the good the seller would like to sell at every possible price. All of the above

Office workers and word processing programs are complements if:

a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by:

a fall in consumer income assuming corn is a normal good.

Suppose that the equilibrium price of pickles falls while the equilibrium quantity rises. The most likely explanation for these changes is:

an increase in the supply of pickles.

Refer to the figure below. Moving from demand curve D1 to demand curve D2 illustrates a(n):

increase in demand.

An increase in both the equilibrium price and the equilibrium quantity of DVD players is best explained by a(n):

increase in the demand for DVD players.

A market equilibrium: 2

leaves no unexploited opportunities for individuals.

If supply increases and demand decreases, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

lower; uncertain

Buyers and sellers of a particular good make up the:

market for the good.

Refer to the figure above. Assume demand remains unchanged at D1. If supply shifts from S2 to S1, then the equilibrium price will ______ and the equilibrium quantity will ______.

rise; fall

When a market is in equilibrium:

there is neither excess demand nor excess supply.

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the buyer's surplus from this transaction was: A. $195

$20

Assume both the demand for beef and the supply of beef decrease. Which of the following outcomes is certain to occur?

The equilibrium quantity of beef will fall.

Assume both the demand for bagels and the supply of bagels increase. Which of the following outcomes is certain to occur?

The equilibrium quantity of bagels will rise.

Suppose quantity demanded is given by Qd=100-P, and quantity supplied is given by Qs=20+3P. In this case, equilibrium price, P*, and equilibrium quantity, Q*, are as follows:

P*=20, Q*=80

Which of the following would cause an increase in quantity of wheat supplied?

The price farmers receive for their wheat rises.

The price of bananas will increase in response to:

an excess demand for bananas.

Refer to the figure below. Consider the original supply and the original demand curve. If the government imposes a price ceiling of $1.00 on a cup of coffee, then there would be:

an excess demand for coffee.

Refer to the figure below. At a price of $3, there will be:

an excess demand of 5 units.

Refer to the figure below. At a price of $9, there will be:

an excess supply of 5 units.

Suppose you observe an increase in the equilibrium price of coffee and a decrease in the equilibrium quantity of coffee. Of the options listed below, this is most consistent with:

an increase in the cost of producing coffee.

Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, then one would expect to see:

an increase in the demand for pasta.

Suppose a new study highlights the health benefits of eating bacon. At the same time, suppose the cost of producing bacon falls. Given these changes, you should expect to see:

an increase in the equilibrium quantity of bacon, but it's hard to say what will happen to the equilibrium price.

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

at least $1.75 but less than $2.

Refer to the figure below. Assume demand remains unchanged at D1. If supply shifts from S1 to S2, then the equilibrium price will ______ and the equilibrium quantity will ______.

fall; rise

When two people agree to a price in a negotiation, we can assume that:

both parties will benefit.

Equilibrium price and quantity are determined by:

both supply and demand.

When the current price of a good is below the equilibrium price:

buyers have an incentive to offer to pay sellers more than the current price.

It is likely that for most people:

coffee and tea are substitutes.

Refer to the figure below. An increase in demand is represented by a shift from:

curve C to curve D.

A decrease in both the equilibrium price and the equilibrium quantity of rice is best explained by a(n):

decrease in the demand for rice.

Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity of T-shirts decreases. This is best explained by a(n):

decrease in the supply of T-shirts.

As the price of flour (an input in the production of cookies) increases, firms that produce cookies will:

decrease the supply of cookies.

All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity.

decrease; decrease

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case,

excess supply will lead the price of broccoli to fall

Refer to the figure below. Moving from demand curve D1 to demand curve D2 could be caused by a(n):

increase in the price of a close substitute.

Refer to the figure below. Moving from demand curve D2 to demand curve D1 could be caused by a(n):

increase in the price of a complement.

A decrease in the price of pizza will lead to a(n):

increase in the quantity of pizza demanded.

Suppose that the equilibrium price of apples decreases and the equilibrium quantity of apples increases. This is best explained by a(n):

increase in the supply of apples.

As the price of cookies increases, firms that produce cookies will:

increase the quantity of cookies supplied.

The quantity that a seller wishes to sell tends to ______ as price increases, and so the supply curve is ______ sloping.

increase; upward

The market demand curve illustrates the fact that consumers tend to purchase:

more of a good as its price falls.

Efficiency is an important social goal because:

movements toward economic efficiency make the total economic pie larger.

If the supply curve and the demand curve both shift to the left, then the new equilibrium:

quantity will be lower, but the direction of the price change is uncertain.

Refer to the figure below. Suppose the solid line represents the current supply of Star Wars action figures. If the price of the plastic used to make action figures rises, current supply will:

shift to S(A).

Refer to the figure below. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect:

the demand curve to shift to D(A) because some people will stop drinking coffee.