ECO 201 Exam Review

_____ is a measure of how much your decision has _____ your well-being.

Economic surplus; increased

Grapes become more expensive in the market. Which of the following can explain the increase in price?

Grape production is the same, but wine production has gone up, which requires more grapes.

What happens to the equilibrium price and quantity when demand increases and simultaneously supply decreases, and the relative size of the shifts is not known?

The equilibrium price rises, and the change in the equilibrium quantity is ambiguous.

Which statement is CORRECT?

A change in quantity demanded is a movement along the demand curve, and a change in demand is a shift of the demand curve.

An increase in price and an ambiguous change in quantity are MOST likely caused by:

a shift to the left of the supply curve and a shift to the right of the demand curve.

In much of the country, car owners choose to operate their vehicles using gasoline or electricity, both of which are normal goods. Which factor would cause an increase in the demand for gasoline?

an increase in consumer incomes

Suppose we observe an increase in both the price of ping pong tables and the quantity of ping pong tables bought and sold. Which statement would explain this observation?

an increase in the demand for ping pong tables

What happens to the equilibrium price and equilibrium quantity when demand and supply decrease simultaneously, but the relative size of the shifts are not known?

The equilibrium quantity falls, and the change in equilibrium price is ambiguous.

Suppose you manage a convenience store. If macaroni and cheese is an inferior good, what do you suppose would happen to the price and quantity sold of macaroni and cheese as incomes fall during a recession?

The price and quantity would both increase.

Which of the following is not a demand shifter?

The price of the product

Which factor will NOT cause an increase in the demand for shoes?

a decrease in the price of shoes

Spaghetti and salad are related goods. Holding everything else constant, if the price of spaghetti decreases and the demand for salad increases, spaghetti and salad are probably:

complements

The demand for bottled water decreases at a time when people believe bottled water prices will soon fall. The change in demand is most likely attributable to a change in:

consumer expectations.

If a demand curve is downward sloping, a decrease in supply with no change in demand will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

decrease; increase

If yoghurt and smoothies are substitutes in consumption, then a rise in the price of yoghurt will cause the:

demand for smoothies to increase.

A surplus occurs when the:

equilibrium price is below the current price.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will:

fall, due to a rise in supply.

The Rational Rule for Sellers says that a seller should sell one more unit of an item if the price is:

greater than or equal to the marginal cost.

An increase in demand and an increase in supply will lead to a(n) _____ in the equilibrium quantity and a(n) _____ in the equilibrium price.

increase; indeterminate change

If a seller expects prices to rise in the future

it will stock up today and sell the goods when the price rises.

To maximize economic surplus, keep increasing output as long as

marginal benefits exceed marginal costs

A shortage occurs when:

quantity demanded exceeds quantity supplied.

Suppose the market for gasoline is in equilibrium. You have heard that the price of crude oil is rising because of Organization of Petroleum Exporting Countries (OPEC) restrictions. You are also aware that the number of drivers is rising. Knowing this, you predict that the price of gasoline will _____ and the quantity of gasoline bought and sold will _____.

rise; rise or fall

The price of microchips used to produce iPads rises. As a result, the equilibrium price of iPads _____, and the equilibrium quantity _____.

rises; decreases

You notice that the price of notebooks falls and that the quantity of notebooks sold increases. You suspect that the _____ notebooks shifts to the _____.

supply of; right

If expected future profits in an industry fall,

supply will shift left.

It is certain that the equilibrium price will fall when:

the quantity supplied is greater than the quantity demanded.

It is certain that the equilibrium quantity will fall when:

the supply curve and the demand curve both shift to the left.

A downward-sloping demand curve implies:

there is an inverse relationship between price and quantity demanded.