CH 4

Suppose that when good L is free, buyers will demand 1,000 units of it, but the quantity demanded falls by 40 units for every $3 increase in the price. If the quantity supplied is fixed at 640 units, the equilibrium price will be: $24. $27. $48. $30.

$27 Explanation: ((1,000 - 640) / 40) x $3 = $27

Equilibrium

when the quantity demanded is equal to the quantity supplied

Lower production costs result in: A) a higher equilibrium price. B) a lower equilibrium price. C) a lower equilibrium quantity. D) no change in the equilibrium price.

B

Which statement accurately describes the competition that determines the price of a good? A) Sellers compete with buyers. B) The government competes with sellers. C) Buyers compete with buyers, driving the price of a good up to the equilibrium price. D) The government competes with buyers

C Explanation: If the price you want to buy at is high, you should not blame the seller; blame other buyers for outbidding you

A new farming technology decreases the cost of producing peanuts, which causes the price of peanut butter to decrease. What happens to the equilibrium price and equilibrium quantity of jelly? A) Both the equilibrium price and equilibrium quantity increase. B) The equilibrium price remains the same, and the equilibrium quantity increases. C) The equilibrium quantity increases, but it is uncertain what happens to the equilibrium price. D) The equilibrium price decreases, and the equilibrium quantity increases.

A

An increase in the demand for Swedish watches will result in a(n): A) increase in the equilibrium price and quantity of Swedish watches supplied. B) decrease in the equilibrium price and an increase in the quantity of Swedish watches supplied. C) increase in the equilibrium price of Swedish watches, while the change in the quantity of Swedish watches supplied cannot be determined without more information. D) increase in quantity demanded and price as supply increases.

A

From the early twentieth century to the 1970s, the demand for oil: A) increased steadily B) decreased steadily C) remained unchanged D) decreased and then increased rapidly

A

In Vernon Smith's classroom experiments, prices, quantities, and gains from trade all converged quickly to those predicted by economic theory: A) despite the fact that students knew only their own willingness to buy or sell. B) because the students were all experts in the supply and demand model. C)despite the fact that other experiments had consistently disproved the supply and demand model. D) because the students were fully aware of the supply and demand curves.

A

The industrial revolution underway in China and India has induced millions of people to buy automobiles for the first time. This will drive oil prices: A) up, because of an increase in demand. B) up, because of an increase in supply. C) down, because of an increase in supply. D) down, because of an increase in demand.

A

Which statement about Vernon Smith's laboratory experiments is correct? A) The participants were sorted into two groups. B) They were complicated. C) The participants were volunteers from the general public. D) The participants were sorted into four groups.

A

Vernon Smith began his laboratory experiments expecting: A) to prove that the supply and demand model was wrong. B) to win a Nobel Prize. C) price, quantity, and gains from trade to converge even more quickly to equilibrium. D) exactly the results that he got.

A

According to the supply and demand model: the price of one of its complements increases, the price of a good will ________ A) increase B) decrease C) stay the same

B

"According to the supply and demand model, all else equal, if the technology used to produce a good improves, supply will increase, causing the price to fall, which causes the quantity demanded to rise as well." This statement is: A) false, because the price will rise. B) false, because quantity supplied, not supply, will increase. C) true. D) false, because quantity demanded will fall.

C

Vernon Smith's laboratory experiments revealed that the supply and demand model: A) is too simple to be tested scientifically. B) works best when buyers and sellers have extensive training in economics. C) works well on paper but not in practice. D) successfully predicts real-life behavior.

D

When the free market maximizes the total gains from trade, goods are sold by the sellers: A) with the highest costs. B) who brings their output to the market first. C) who receives the most government subsidies. D) with the lowest costs.

D Explanation: The market price keeps the sellers with the highest costs out of the market.

What does a decrease in supply result in? A) No change in the equilibrium price B) A lower equilibrium price C) A higher equilibrium quantity D) A lower equilibrium quantity

D Explanation: equilibrium is EQUAL