chap 3 ECON
T F Suppose that a frost destroys much of the Florida orange crop. At the same time, suppose consumer tastes shift away from orange juice. We would expect the equilibrium quantity of oranges to decrease and the equilibrium price of oranges to increase.
F
T F If the price of video game players falls, the equilibrium price of video game players tends to increase and the equilibrium quantity tends to increase, in a competitive market.
T
25. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and potatoes are a consumer substitute for bread we would expect the price of wheat to: a. rise, the supply of bread to increase, and the demand for potatoes to increase. b. rise, the supply of bread to decrease, and the demand for potatoes to increase. c. rise, the supply of bread to decrease, and the demand for potatoes to decrease. d. fall, the supply of bread to increase, and the demand for potatoes to increase.
B
29. Refer to the above 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. the market would clear and there would be no surplus or shortage. b. a surplus of 20 units would occur. c. a shortage of 20 units would occur. d. demand would change from columns (3) and (2) to columns (3) and (1).
B
30. Refer to the above diagram. A surplus of 160 units would be encountered if the price was: a. $1.10, that is, $1.60 minus $.50. b. $1.60. c. $1.00. d. $0.50.
B
32. 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
.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
1. A market: a. reflects upsloping demand and downsloping supply curves. b. entails the exchange of goods, but not services. c. is an institution that brings together buyers and sellers. d. always requires face-to-face contact between buyer and seller.
C
33. The rationing function (rationing role) 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 quantity demanded and quantity supplied. d. ability of the market system to generate an equitable distribution of income.
C
T F Future prices have no effect on the location of a demand curve.
F
T F Given the demand equation, Qd = f (price), we can say that Qd is the independent variable and price is the dependent variable.
F
T F If the productivity of the U.S. worker improves in the software industry, the equilibrium price of software will increase.
F
T F If two products, A and B, are complements, then an increase in the price of A will increase the demand for B.
F
T F Suppose there is an increase in both the supply and demand curves for personal computers. In the market for personal computers, we would expect the equilibrium quantity to rise and the equilibrium price to rise.
F
T F The law of demand states that price and quantity have a positive relationship. The law of supply states that price and quantity have a negative relationship.
F
T F When a good is "inferior" and income increases, we buy more of the good.
F
T F When the price of a digital music player rises, the quantity of digital music players demanded by consumers falls. Therefore, the demand curve for digital music players is upward sloping.
F
T F According to the law of demand, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase; when the price of a product rises, the quantity demanded of the product will decrease.
T
T F An increase in demand suggests that a buyer is willing and able to purchase a larger quantity at a particular price. Also, it suggests that a buyer is willing and able to pay a higher price for a particular quantity.
T
T F An increase in the price of beans will cause the supply curve of beans to shift rightward.
T
T F If Burger King lowers the price of its hamburgers, the demand for McDonald's hamburgers tends to decline.
T
T F If an increase in the price of automobiles leads to a decrease in the demand for automobile batteries, then autos and batteries are complementary goods.
T
T F If peanut butter and jelly are complements, an increase in the price of jelly will cause the demand for peanut butter to fall.
T
T F A consumer's demand for a product is downward sloping because total utility decreases as more of the product is consumed.
F
T F A shortage causes prices to decline, while a surplus causes prices to increase.
F
T F An early frost in the apple orchards of Washington State would cause a decrease in the supply of apple juice and an increase in equilibrium price.
T
T F The consumer realizes increasing marginal utility for the first 4 tacos consumed.
f
73. T F Economic theory predicts that a shortage of nurses would be reduced if wages were increased for nurses.
T
T F The rationing role (function) if prices is the elimination of surpluses and shortages of a product.
T
Markets, viewed from the perspective of the supply and demand model: 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
Productive efficiency refers to: a. the use of the least-cost method of production .b. the production of the product-mix most wanted by society. c. the full employment of all available resources. d. production at some point inside of the production possibilities curve.
A
The law of demand states that, other things equal: 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
The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is ____. a. direct, inverse b. inverse, direct c. inverse, inverse d. direct, direct
A
17. "In the corn marketdemand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly? a. in neither statement. b. in the second statement. c. in the first statement. d. in both statements.
B
18. Assume that the demand curve for product C is downsloping. If the price of C falls from $2.00 to $1.75: a. a smaller quantity of C will be demanded. b. a larger quantity of C will be demanded. c. the demand for C will increase. d. the demand for C will decrease.
B
27. Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4)equilibrium price and quantity will be: a. $10 and 60 units. b. $9 and 60 units. c. $8 and 80 units. d. $7 and 30 units.
B
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: a. supply has increased and equilibrium quantity has decreased. b. supply has decreased and equilibrium quantity has decreased. c. there has been an increase in the quantity supplied .d. supply has increased and price has risen to 0G.
B
The utility of a good or service: a. is synonymous with usefulness. b. is the satisfaction gets from consuming it. 'C is easy to quantify. d. rarely varies from person to person.
B
23. Because of unseasonably cold weather the supply of oranges has substantially decreased. This statement indicates the: a. demand for oranges will necessarily rise. b. equilibrium quantity of oranges will rise. c. amount of oranges that will be available at various prices has declined. d. price of oranges will fall.
C
31. If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will: a.increase the supply of X and decrease the demand for X. b. increase the demand for X and decrease the supply of X. c. increase the quantity supplied and decrease the quantity demanded of X. d. decrease the quantity supplied of X and increase the quantity demanded of X.
C
T F A change in quantity demanded and a change in demand are identical concepts. Also, a change in quantity supplied and a change in supply are identical concepts.
F
T F A consumer's demand curve for a product is downsloping because marginal utility increases as more of a product is consumed.
F
Decrease in demand, supply constant.
Price decreases, quantity decreases
Increase in supply, demand constant.
Price decreases, quantity increases
Decrease in demand, increase in supply.
Price decreases, quantity indeterminate
T F If people take more vacations when incomes increase, vacations are normal goods.
T
T F Suppose there is an increase in both the supply curve and demand curve for personal computers. Also, suppose the supply curve of personal computers increases more than the demand curve for personal computers. In the market for personal computers, we would expect the equilibrium quantity to rise and the equilibrium price to fall.
T
T F The "ceteris paribus" (all else equal) condition is the requirement that when analyzing the relationship between two variables—such as price and quantity demanded or price and quantity supplied—other variables must be held constant.
T
T F The consumer first realizes diminishing marginal utility with the consumption of the third taco.
T
T F The demand curve is a schedule that shows the various amount of a product consumers are willing and able to purchase at each price in a series of possible prices during a specified period of time.
T
T F If the quantity demanded at each price rises by 130 radios, the new equilibrium quantity will be 365.
T
T F If total utility is increasing, then marginal utility is positive and may be either increasing or decreasing.
T
T F Marginal utility is the change in total utility from consuming one more unit of output.
T
T F Proponents of the minimum wage argue that a higher wage tends to increase the productivity of workers and reduce job absenteeism, thus increasing the demand for labor.
T
T F Suppose that a rise in the cost of labor reduces the quantity supplied by 65 radios at each price. The new equilibrium price would be $28.
T
T F Suppose that the U.S. government imposes a below-equilibrium ceiling on the interest rate that can be charged on Visa or MasterCard credit. To offset this ceiling, banks might tighten credit standards on credit-card users, increase the annual fee applied to credit cards, or increase the swipe fee that they charge merchants for processing credit-card sales.
T
T F The equilibrium price and quantity would shift from point Z to point X as a result of an increase in production costs and worsening consumer preferences for the good.
T
T F The market equilibrium price equals $3.60 per pound. At this price, buyers will spend $1,440 on wheat and sellers will receive $1,440.
T
T F The price of lobsters is higher in the spring than in the summer, even though demand is greater in the summer. The lower summer price results from increases in the supply of lobsters in the summer.
T
T F When there is excess supply (surplus) in the market, prices will tend to increase.
F
T F If the supply of good X increases and the demand for good X remains the same, the equilibrium price decreases and the equilibrium quantity increases.
T
T F Rush-hour congestion on the highways of large cities could be reduced by building additional highways, encouraging people to travel on buses or subways, or assessing drivers tolls during peak driving periods of the day.
T
T F The term quantity demanded refers to the quantity of a good that a consumer is willing and able to purchase at a given price. The term quantity supplied refers to the quantity of a good that a firm is willing and able to supply at a given price.
T
T F When new Internet companies enter existing market, they help to increase the market supply, increase the equilibrium quantity, and decrease the equilibrium price.
T
Consumers buy more of a product when its price falls because their purchasing power will increase, and thus they can afford to buy more (assuming the product is a normal good). Which of the following explanations of the law of demand describes this situation? a. the income effect b. the substitution effect c. the law of diminishing marginal utility d. none of the above
A
34. 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
A decrease in the price of digital cameras will: a. cause the demand curve for memory cards to become vertical. b. shift the demand curve for memory cards to the right. c. shift the demand curve for memory cards to the left. d. not affect the demand for memory cards.
B
Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to: a. raise their price and reduce their quantity supplied. b. raise their price and increase their quantity supplied. c. lower their price and reduce their quantity supplied. d. lower their price and increase their quantity supplied.
B
. The law of demand (that demand curves are downward sloping) is explained by the a. income effect b. substitution effect c. law of diminishing marginal utility d. all of the above
D
. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? a. A only. b. B only. c. C only. d. D only.
D
16. Refer to the above diagram. A decrease in quantity demanded is depicted by a: a. move from point x to point y. b. shift from D1 to D2. c. shift from D2 to D1. d. move from point y to point x.
D
T F The demand curve for Coca-Cola would shift to the left in response to an increase in the price of Coca-Cola.
F
132. T F The law of diminishing marginal utility suggests that increases in satisfaction become smaller as successive units of a specific product are consumed.
T
T F An increase in incomes leads to a decrease in the demand for margarine, a butter substitute. Therefore, margarine is a normal good.
F
T F A decrease in the price of steel would cause the supply curve of autos to shift to the right.
T
T F If two goods are substitutes for each other, an increase in the price of one will increase the demand for the other.
T
T F In a free market, the pricing system would ration natural gas to those buyers who are willing and able to pay the highest price.
T
T F In voting for subsidies to dairy farmers, a legislator is helping to increase the supply of dairy products.
T
T F Increases in the supply of flat-screen televisions led to lower prices and increased quantity demanded for these televisions.
T
T F Other things remaining constant, if the demand for Coca-Cola decreases due to a health scare, the equilibrium price of Coca-Cola also tends to decrease.
T
Other things equal, an excise tax on a product will: a. increase its supply. b. increase its price .c. increase the quantity sold. d. increase its demand.
B
T F A movement along the demand curve for HP printers will occur in response to change in buyer income or chaning tastes and preferences.
F
T F A rent control provides an example of a price floor while a minimum wage law provides an example of a price ceiling.
F
The law of diminishing marginal utility explains why: a. supply curves slope upward. b. demand curves slope downward. c. addicts can never get enough. d. people will only consume their favorite goods and not try new things.
B
The law of diminishing marginal utility states that: a. total utility is maximized when consumers obtain the same amount of utility per unit of each product consumed .b. beyond some point additional units of a product will yield less and less extra satisfaction to a consumer .c. price must be lowered to induce firms to supply more of a product. d. it will take larger and larger amounts of resources beyond some point to produce successive units of a product
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
. Which of the above diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? a. A only. b. A and D. c. B only .d. D only.
A
. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n): a. increase in the wage rates paid to laborers employed in the production of X .b. government subsidy per unit of output paid to firms producing X .c. decline in the price of the basic raw material used in producing X. d. increase in the number of firms producing X.
A
. Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? a. an increase in supply. b. an increase in demand. c. a decrease in supply. d. a decrease in demand.
A
14. Which of the following would most likely increase the demand for gasoline? a. the expectation by consumers that gasoline prices will be higher in the future. b. the expectation by consumers that gasoline prices will be lower in the future. c. a widespread shift in car ownership from SUVs to hybrid sedans. d. a decrease in the price of public transportation.
A
If two goods are complements: a they are consumed independently. b. an increase in the price of one will increase the demand for the other. c. a decrease in the price of one will increase the demand for the other. d. they are necessarily inferior goods.
C
With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices 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.
C
24. In moving along a 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
An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction assumes that: a. there are many goods that are substitutes for bicycles. b. there are many goods that are complementary to bicycles. c. there are few goods that are substitutes for bicycles. d. bicycles are normal goods.
D
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then a. at any price above 0G a shortage would occur. b. 0F represents a price that would result in a surplus of AC. c. a surplus of GH would occur. d. 0F represents a price that would result in a shortage of AC.
D
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: a. an inferior good. b. the rationing function of prices .c. the substitution effect. d. the income effect.
D
Consumers buy more of a product when its price falls because the product is now less expensive compared to other products. Which of the following explanations of the law of demand describes this situation? a. the income effect 'B.the substitution effect c. the law of diminishing marginal utility d. none of the above
B
T F According to the income effect, a higher price for a good encourages consumers to search for cheaper substitutes and thus buy less of it.
F
T F According to the law of diminishing marginal utility, after a point, consumers get less satisfaction from consuming more and more units. Therefore, to encourage consumers to buy more units of a product, a seller must increase price.
F
T F According to the law of supply, an increase in price causes the supply curve to shift to the right. According to the law of demand, an increase in price causes the supply curve to shift to the left.
F
T F An inferior good is a good for which demand increases as income rises. A normal good is a good for which demand decreases as income increases.
F
T F Because rent controls result in rising profits for rental apartments, landlords have the incentive to construct more apartment buildings
F
T F Big Macs are normal goods because the demand for Big Macs increased during the recent recession in the United States, when our nation's income declined.
F
T F During World War II, the U.S. government found it necessary to ration gasoline and other items. To ration gasoline, the government implemented a gasoline tax which resulted in higher gasoline prices for motorists.
F
T F If a price ceiling enacted by the government is set at $3.40, there will be a surplus of 150 pounds of wheat.
F
T F If a price floor (support) enacted by the government is set at $4.20, there will be a shortage of 520 pounds of wheat.
F
T F If a shortage exists in the market, we know that the actual price is above the equilibrium price and the quantity demanded is less than the quantity supplied.
F
T F Marginal utility becomes negative with the consumption of the sixth taco.
F
T F The equilibrium price of radios equals $24.
F
T F The income and substitution effects will induce the consumer to purchase more of a normal good when its price increases.
F
T F The reason the substitution effect works to encourage a consumer to buy more of a product when its price decreases is because the real income (purchasing power) of the consumer has increased.
F
T F The state of Washington's minimum wage is currently lower than the minimum wage set by the federal government.
F
T F Assume that the initial equilibrium price and quantity in the market are P2 and Q2. An increase in supply would cause the equilibrium price and quantity to shift to P1and Q3,
T
T F Assume that the market is initially in equilibrium where D1 and S1 intersect. If there is an increase in the number of buyers, then the new equilibrium would most likely be at point Y.
T
Decrease in supply, demand constant.
Price increases, quantity decreases
. Increase in demand, supply constant.
Price increases, quantity increases
Increase in demand, decrease in supply.
Price increases, quantity indeterminate
Decrease in demand, decrease in supply.
Price indeterminate, quantity decreases
Increase in demand, increase in supply.
Price indeterminate, quantity increases
T F Critics of the minimum wage argue that, by increasing the wage rate, the minimum wage reduces the employment of workers, especially unskilled workers.
T
T F According to the income effect, a higher price reduces the purchasing power of consumers' incomes, so they cannot buy as much of the good. Thus, the demand curve for this good is downward sloping.
T
T F According to the substitution effect, a higher price for a good encourages consumers to search for cheaper substitutes and thus buy less of it. Thus, the demand curve for this good is downward sloping.
T
T F Utility is the benefit or satisfaction a person receives from consuming a good or service.
T
T F According to the substitution effect, a higher price for a good decreases the purchasing power of consumers' incomes so they can't buy as much of the good.
f
19. The law of supply indicates that other things equal: a. producers will offer more of a product at high prices than at low prices. b. the product supply curve is downsloping. c. consumers will purchase less of a good at high prices than at low prices. d. producers will offer more of a product at low prices than at high prices.
A
26. Suppose that at prices of $1 $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices? a. improved technology for producing Z b. an increase in the prices of the resources used to make Z c. an increase in the excise tax on product Z d. increases in the incomes of the buyers of Z
A
28. Refer to the above table. In relation to column (3) a change from column (2) to column (1) would indicate a(n): a. increase in demand. b. decrease in demand. c. increase in supply. d. decrease in supply.
A
If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium: a. price must rise, but equilibrium quantity may rise, fall, or remain unchanged. b. price must rise and equilibrium quantity must fall. c. price and equilibrium quantity must both increase. d. price and equilibrium quantity must both decline.
A
In presenting the idea of a demand curve, economists presume the most important variable in determining the quantity demanded is: a. the price of the product itself .b. consumer income. c. the prices of related goods. d. consumer tastes.
A
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: a. 0F and 0C, respectively. b. 0G and 0B, respectively. c. 0F and 0A, respectively .d. 0E and 0B, respectively.
A
. Which of the above diagrams illustrate(s) the effect of a decline in the price of irrigation equipment on the market for corn? a. B only. b. C only. c. B and C. d. D only.
B
. 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
. Which of the following will not cause the demand for product K to change? a. a change in the price of close-substitute product J b. an increase in incomes of buyers of product K c. a change in the price of K d. a change in consumer tastes for K
C
15. Refer to the above diagram. A decrease in demand is depicted by a: a. move from point x to point y. b. shift from D1 to D2. c. shift from D2 to D1. d. move from point y to point x.
C
20. Refer to the above diagram. A decrease in supply is depicted by a: a. move from point x to point y. b. shift from S1 to S2. c. shift from S2 to S1. d. move from point y to point x.
C
21. 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
22. An improvement in production technology will: a. increase equilibrium price. b. shift the supply curve to the left. c. shift the supply curve to the right. d. shift the demand curve to the left.
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
T F When goods are complements, they can be used for the same purpose. When goods are substitutes, they are used together.
F
Which of the following will cause the demand curve for product A to shift to the left? a. population growth that causes an expansion in the number of persons consuming A. b. an increase in money income if A is a normal good. c. a decrease in the price of complementary product C. d. an increase in money income if A is an inferior good.
D
T F An increase in demand, with supply remaining the same, will decrease the equilibrium price and quantity; a decrease in demand, with supply remaining the same, will increase the equilibrium price and quantity.
F
T F An increase in supply, with demand staying the same, will increase the equilibrium price and decrease the equilibrium quantity; a decrease in supply, with demand staying the same, will decrease the equilibrium price and increase the equilibrium quantity.
F
T F An increase in the price of watches will cause the supply curve of watches to increase. It will also cause the demand curve for watches to decrease.
F
T F Due to improvement in labor productivity, Boeing is able to reduce its production cost. At the same time, the demand for Boeing jetliners decreases due to an economic downturn in Asia. This will lead to an increase in the price of Boeing jetliners.
F
T F Rent controls are an example of a price floor while minimum wage laws are an example of a price ceiling.
F
T F If the price of a product is above the market equilibrium price, there will be a surplus or excess supply. In this case, the quantity demanded is less than the quantity supplied at that price.
T
If California orange growers experience labor shortages due to stricter restrictions on immigrant pickers, while the demand for oranges remains stable, the equilibrium price of oranges will increase.
T
T F A decrease in resource prices and a tax cut that reduces production costs result in the supply curve shifting to the right.
T
T F A market is a mechanism by which buyers and sellers interact and communicate to trade goods and services.
T
T F A price ceiling set by government prevents price from performing its rationing role (function) in a market system. It creates a shortage at the government-set price.
T
T F A price floor is a minimum price set by government for the sale of a product or resource. At creates a surplus at the fixed price.
T
T F A producer's supply curve is upward sloping when production costs of additional units of output increase.
T
T F If the demand for coal increases more than the supply of coal, we would expect an increase in market quantity and an increase in price.
T
