Econ 105 Ch4

2) Which of the following statements correctly describes perfectly competitive market equilibrium? A) Deviations from equilibrium are temporary and equilibrium is automatically restored. B) Government intervention is necessary for the market to reach equilibrium. C) There is always excess supply or excess demand when the market is in equilibrium. D) Multiple equilibriums are possible for a given set of demand and supply curves.

A) Deviations from equilibrium are temporary and equilibrium is automatically restored.

26) Which of the following pairs of goods are likely to be considered complements? A) Pens and writing pads B) Laptops and electric heaters C) Motorcycles and typewriters D) Nokia and Samsung cell phones

A) Pens and writing pads

34) Z is a normal good. The equilibrium price and quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had increased to $35 but the equilibrium quantity had decreased to 50 units. Other things remaining the same, which of the following could explain this change? A) Shift of the supply curve of Z to the left B) Shift of the supply curve of Z to the right C) Shift of the demand curve for Z to the left D) Shift of the demand curve for Z to the right

A) Shift of the supply curve of Z to the left

36) Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2011 was $25 and 60 units, respectively. It was seen that, in 2014, the equilibrium price of Z had decreased to $15, but the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change? A) Shift of the supply curve of Z to the right B) Shift of the supply curve of Z to the left C) Shift of the demand curve for Z to the left D) Shift of the demand curve for Z to the right

A) Shift of the supply curve of Z to the right

6) Suppose the market for cement is one where there are a large number of buyers and sellers, and everyone conducts transactions at a common market price. Which of the following statements is true about the structure of the cement market? A) The cement market is free and competitive. B) The cement market is government regulated. C) All participants in the cement market set their own prices. D) All transactions in the cement market are likely to be involuntary.

A) The cement market is free and competitive.

41) Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a lower price and quantity. B) a higher price and a lower quantity. C) the same price and a lower quantity. D) a lower price and a higher quantity.

A) a lower price and quantity.

32) Other things remaining same, a right shift in the demand curve will lead to: A) an increase in the equilibrium price and the equilibrium quantity. B) a decrease in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.

A) an increase in the equilibrium price and the equilibrium quantity.

1) The equilibrium quantity in a perfectly competitive market is determined: A) at the point of intersection of the demand and supply curves. B) at the point of tangency between the demand and supply curves. C) at the point of intersection of the supply curve and the quantity axis. D) at the point of intersection of the demand curve and the quantity axis.

A) at the point of intersection of the demand and supply curves.

1) A price ceiling imposed by the government: A) can create situations of excess demand. B) is a tax that increases the market price of a good. C) involves pricing a commodity above the market price. D) helps in establishing equilibrium in case of shortage or surplus.

A) can create situations of excess demand.

8) The willingness to pay for a commodity: A) decreases as consumption of the commodity increases. B) increases as consumption of the commodity increases. C) is always less than the market price of the commodity. D) is always greater than the market price of the commodity.

A) decreases as consumption of the commodity increases.

14) A fall in the price of flour, used in making cakes, is likely to: A) increase the supply of cakes. B) decrease the supply of cakes. C) increase the quantity supplied of cakes. D) decrease the quantity supplied of cakes.

A) increase the supply of cakes.

4) In a perfectly competitive market, the market clearing price: A) is always equal to the equilibrium price. B) is unrelated to the equilibrium price. C) is always lower than the equilibrium price. D) is always higher than the equilibrium price.

A) is always equal to the equilibrium price.

29) Assume that the economy is in a recession and consumers are expecting a fall in their income levels. This will cause a(n): A) left shift in the market demand for all goods. B) right shift in the market demand for all goods. C) increase in the total quantity demanded of all goods. D) decrease in the total quantity demanded of all goods.

A) left shift in the market demand for all goods.

18) An expected increase in the market price of oil in the coming year is likely to: A) shift the supply curve of oil to the left in the current year. B) shift the supply curve of oil to the right in the current year. C) shift the demand curve for oil to the left in the current year. D) cause no changes in the demand and supply curves of oil in the current year.

A) shift the supply curve of oil to the left in the current year.

14) The market demand is the ________ of the individual demand of all the potential buyers. A) sum B) product C) square of the sum D) square root of the sum

A) sum

8) The market supply is the ________ of the individual supplies of all the potential sellers. A) sum B) product C) square of the sum D) square root of the sum

A) sum

3) A competitive market is one: A) that operates with little or no government control. B) where almost all exchanges take place involuntarily. C) that has price controls imposed by a ruling authority. D) where determination of equilibrium quantity need not rely on the forces of demand and supply.

A) that operates with little or no government control.

8) A seller who is a price taker charges: A) the market price. B) above the market price. C) below the market price. D) different prices to different buyers.

A) the market price.

5) Which of the following best describes the difference between a demand curve and a demand schedule? A) A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve. B) A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation. C) A demand curve shows different quantities of a good demanded at different prices, whereas a demand schedule shows different quantities of a good demanded at different incomes. D) A demand curve shows different quantities of a good demanded at different incomes, whereas a demand schedule shows different quantities of a good demanded at different prices.

B) A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.

28) Which of the following factors is expected to cause the demand curve for coffee to shift to the right? A) A fall in the manufacturing cost of coffee B) A higher tax on the sale of tea, a substitute for coffee C) A higher personal tax on the income of all consumers D) An increase in the supply of coffee due to better weather

B) A higher tax on the sale of tea, a substitute for coffee

5) Which of the following examples best describes the Law of Supply? A) When the cost of production of cotton fell, the market price of cotton also fell. B) When the market price of pens increased, sellers started supplying more pens. C) When the market price of pens increased, sellers started supplying fewer pens. D) When the cost of production of cotton increased, all suppliers' willingness to accept decreased.

B) When the market price of pens increased, sellers started supplying more pens.

7) Which of the following examples best describes the Law of Demand? A) When John's income doubles, his telephone bill also doubles. B) When the price of bread doubles, John's consumption of bread halves. C) When the price of watches increases, a local manufacturer starts offering more watches for sale. D) When a new anti-tobacco commercial is released, the consumption of tobacco products decreases sharply.

B) When the price of bread doubles, John's consumption of bread halves.

13) Which of the following examples best describes the Law of Diminishing Marginal Benefit? A) If the weather gets cold, the demand for ice cream will fall. B) With each additional pen Jill buys, her willingness to pay for another pen decreases. C) Each additional unit of ice cream that John consumes gives him more and more satisfaction. D) If a seller of notebooks in a perfectly competitive market charges above the market price, his profit decreases.

B) With each additional pen Jill buys, her willingness to pay for another pen decreases.

30) Other things remaining same, a left shift in the demand curve will lead to: A) an increase in the equilibrium price and the equilibrium quantity. B) a decrease in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.

B) a decrease in the equilibrium price and the equilibrium quantity.

38) If the demand and supply curves for a commodity shift to the right and the shift in demand is greater than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a lower price and quantity. B) a higher price and quantity. C) the same price and quantity. D) a higher price and a lower quantity.

B) a higher price and quantity.

43) Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, and the shift in demand is greater than the shift in supply. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a lower price and quantity. B) a higher price and quantity. C) a higher price and a lower quantity. D) a lower price and a higher quantity.

B) a higher price and quantity.

22) An increase in the demand for a good is represented by: A) a left shift to a new demand curve. B) a right shift to a new demand curve. C) a leftward movement along the demand curve. D) a rightward movement along the demand curve.

B) a right shift to a new demand curve.

4) The demand curve for most goods is normally: A) upward sloping. B) downward sloping. C) parallel to the vertical axis. D) parallel to the horizontal axis.

B) downward sloping.

1) A(n) ________ is a group of buyers and sellers who are trading goods and/or services. A) firm B) market C) enterprise D) government

B) market

7) A shortage occurs in a market when: A) supply exceeds demand. B) price is lower than the equilibrium price. C) price is higher than the equilibrium price. D) the marginal utility of consumption is negligible.

B) price is lower than the equilibrium price.

16) Assume that a worker in a technology firm can produce 3 circuit boards in an hour. Due to subsequent innovation, he is now able to produce 6 circuit boards per hour. Other things remaining the same, the firm's supply curve is likely to: A) shift to the left. B) shift to the right. C) become steeper. D) remain unchanged.

B) shift to the right.

3) The ________ plots the relationship between prices and the quantity producers are willing to sell. A) isoquant B) supply curve C) demand curve D) indifference curve

B) supply curve

4) The Law of Supply states that: A) supply creates its own demand. B) the quantity supplied of a good rises when the price rises. C) at the equilibrium price, there is always some excess supply in the market. D) the quantity supplied of a good will always equal the quantity of the good demanded.

B) the quantity supplied of a good rises when the price rises.

24) Which of the following pairs of goods are likely to be considered substitutes? A) Coffee and sugar B) Printers and printing ink C) A Ford car and public transportation D) A Nokia cell phone and a Nokia cell phone charger

C) A Ford car and public transportation

6) At a price of $1 per table, the quantity supplied of tables is 100 units whereas the quantity demanded is 70 units. Given this information, which of the following statements is true? A) $1 per table is the equilibrium price. B) $1 per table is the market clearing price. C) At $1 per table, there is a surplus in the market. D) At $1 per table, there is a shortage in the market.

C) At $1 per table, there is a surplus in the market.

2) Which of the following was an effect of the price ceiling placed on gasoline in the U.S. in the 1970s? A) The inventory of unsold gas increased and gas stations incurred losses. B) Those who valued gas the most were able to buy gas under the price ceiling. C) Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied. D) Car owners started buying luxury cars that were less fuel-efficient as the price of gas was very low.

C) Gas stations ran out of gas as the quantity of gas demanded exceeded the quantity supplied.

35) Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had decreased to $15 and the equilibrium quantity had also decreased to 50 units. Other things remaining the same, which of the following could explain this change? A) Shift of the supply curve of Z to the left B) Shift of the supply curve of Z to the right C) Shift of the demand curve for Z to the left D) Shift of the demand curve for Z to the right

C) Shift of the demand curve for Z to the left

12) Jenny likes chocolates. One day, a friend offers her a chocolate bar and she is extremely happy on receiving it. As the day progresses, many other people also buy her chocolate. As she gets more and more chocolates, her excitement on receiving each bar is seen to gradually lessen. Which economic principle is reflected in this example? A) The Law of Equi-Marginal Utility B) Aggregation of demand behavior C) The Law of Diminishing Marginal Benefit D) The Law of Increasing Willingness to Pay

C) The Law of Diminishing Marginal Benefit

3) Which of the following could explain why there was a stampede at the Richmond International Raceway where 1,000 laptops were being sold at $50 each? A) The demand for laptops is not very responsive to price. B) The price of $50 per laptop was above the equilibrium price of laptops. C) The quantity of laptops demanded at $50 was higher than the quantity supplied. D) Those who bought laptops at that price were those who valued laptops the most.

C) The quantity of laptops demanded at $50 was higher than the quantity supplied.

31) Other things remaining the same, a right shift in the supply curve will lead to: A) an increase in the equilibrium price and the equilibrium quantity. B) a decrease in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.

C) a decrease in the equilibrium price and an increase in the equilibrium quantity.

40) If the demand and supply curves for a commodity both shift to the left and the shift in demand is less than the shift in supply, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) the same price and quantity. B) a higher price and quantity. C) a higher price and a lower quantity. D) a lower price and a higher quantity.

C) a higher price and a lower quantity.

42) Assume that the supply curve for a commodity shifts to the right and the demand curve shifts to the left, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a lower price and quantity. B) a higher price and quantity. C) a lower price and the same quantity. D) a higher price and the same quantity.

C) a lower price and the same quantity.

3) The ________ plots the relationship between prices and the quantity that buyers are willing to purchase. A) market curve B) supply curve C) demand curve D) willingness to accept curve

C) demand curve

2) The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in: A) supply. B) income. C) its price. D) tastes and preferences.

C) its price.

23) Two goods are said to be substitutes when a fall in the price of one good: A) leads to a rise in the price of the other good. B) doesn't affect the demand for the other good. C) leads to a left shift in the demand for the other good. D) leads to a right shift in the demand for the other good.

C) leads to a left shift in the demand for the other good.

5) A surplus occurs in a market when: A) demand exceeds supply. B) price is lower than the equilibrium price. C) price is higher than the equilibrium price. D) the marginal cost of production is negligible.

C) price is higher than the equilibrium price.

4) In a competitive free market: A) all exchanges take place involuntarily. B) there is only one seller and many buyers. C) the government does not impose price controls. D) there is no provision for the protection of property rights.

C) the government does not impose price controls.

7) Willingness to accept is: A) always lower than the marginal cost of production. B) always higher than the marginal cost of production. C) the lowest price that a producer is willing to receive to sell an extra unit of a good. D) the highest price that a producer is willing to receive to sell an extra unit of a good.

C) the lowest price that a producer is willing to receive to sell an extra unit of a good.

6) The Law of Demand states that: A) the demand for a commodity is mostly influenced by consumers' income. B) the demand for a commodity always equals the supply of the commodity. C) the quantity demanded of a commodity varies inversely with the price of the commodity. D) the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market.

C) the quantity demanded of a commodity varies inversely with the price of the commodity.

39) If the demand and supply curves for a commodity both shift to the left by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a higher price quantity. B) the same price and a higher quantity. C) the same price and a lower quantity. D) a lower price and a higher quantity.

C) the same price and a lower quantity.

21) Which of the following factors will NOT cause a shift in the demand for a good? A) A change in consumer incomes B) A change in tastes and preferences C) A change in the number of consumers D) A change in the market price of the good

D) A change in the market price of the good

31) Which of the following is likely to shift the market demand curve for school textbooks to the right? A) An increase in school tuition fees B) A fall in the price of school textbooks C) A fall in the total income of all consumers D) An increase in the enrollment rates in high schools

D) An increase in the enrollment rates in high schools

9) Which of the following is a feature of a perfectly competitive market? A) There is only one seller of a commodity. B) The government rations commodities. C) Commodities are auctioned to the highest bidder. D) Each seller is too small to influence the market price.

D) Each seller is too small to influence the market price.

2) Which of the following correctly explains the role of economic agents in a free market? A) Economic agents set production quotas for sellers in the market. B) Economic agents set prices according to the production cost of each good. C) Economic agents allocate goods to those buyers who need the goods the most. D) Economic agents allocate goods to those buyers who value the goods the most.

D) Economic agents allocate goods to those buyers who value the goods the most.

9) Which of the following statements is correct about the concept of willingness to pay? A) The willingness to pay is the lowest price that a buyer is willing to pay for an extra unit of a commodity. B) The willingness to pay for a commodity increases exponentially as the consumption of the commodity increases. C) The willingness to pay for a commodity increases linearly as the consumption of the commodity increases. D) If a consumer is consuming 10 units of a commodity and he is ready to pay $2 for the eleventh unit, his willingness to pay for the eleventh unit is $2.

D) If a consumer is consuming 10 units of a commodity and he is ready to pay $2 for the eleventh unit, his willingness to pay for the eleventh unit is $2.

33) Z is a normal good. The equilibrium price and quantity of Z in the year 2011 was $25 and 60 units, respectively. In 2014, the equilibrium price of Z had increased to $35 and the equilibrium quantity had increased to 70 units. Other things remaining the same, which of the following could explain this change? A) Shift of the supply curve of Z to the left B) Shift of the supply curve of Z to the right C) Shift of the demand curve for Z to the left D) Shift of the demand curve for Z to the right

D) Shift of the demand curve for Z to the right

10) Which of the following statements correctly describes a competitive market? A) Buyers and sellers negotiate prices before making exchanges. B) The market price for the same good varies from seller to seller. C) Sometimes, a single seller has the ability to dictate the market price. D) The market price is determined by the interaction of demand and supply.

D) The market price is determined by the interaction of demand and supply.

44) Assume that the supply curve for a commodity shifts to the left and the demand curve shifts to the right, both by the same degree. Then, in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a lower price and quantity. B) the same price and quantity. C) a lower price and the same quantity. D) a higher price and the same quantity.

D) a higher price and the same quantity.

37) If the demand and supply curves for a commodity shift to the right by the same amount, then in comparison to the initial equilibrium, the new equilibrium will be characterized by: A) a higher quantity and price. B) a lower quantity and a higher price. C) the same quantity and a lower price. D) a higher quantity and the same price.

D) a higher quantity and the same price.

29) Other things remaining the same, a left shift in the supply curve will lead to: A) a decrease in the equilibrium price and the equilibrium quantity. B) an increase in the equilibrium price and the equilibrium quantity. C) a decrease in the equilibrium price and an increase in the equilibrium quantity. D) an increase in the equilibrium price and a decrease in the equilibrium quantity.

D) an increase in the equilibrium price and a decrease in the equilibrium quantity.

8) In a perfectly competitive market, situations of surplus or shortage of a good: A) can exist simultaneously. B) are permanent phenomena. C) exist till the government or any ruling authority intervenes. D) are self-corrected due to the competitive nature of the market

D) are self-corrected due to the competitive nature of the market

10) The buyers of a good will want to purchase it as long as their willingness to pay for the good is: A) equal to zero. B) greater than zero. C) less than the price. D) greater than or equal to the price.

D) greater than or equal to the price.

1) The quantity supplied of a good: A) is inversely related to the price of the good. B) is determined irrespective of the market price. C) is always equal to the quantity demanded of the good. D) is the amount of the good that sellers are ready to supply at a given price.

D) is the amount of the good that sellers are ready to supply at a given price.

25) Two goods are said to be complements when a fall in the price of one good: A) leads to a fall in price of the other good. B) doesn't affect the demand for the other good. C) leads to a left shift in the demand for the other good. D) leads to a right shift in the demand for the other good.

D) leads to a right shift in the demand for the other good

7) Assume that a seller in a perfectly competitive market charges more than competitors are charging. It is likely that this seller will: A) increase his profit. B) increase his sales. C) lose only a few buyers. D) lose almost all of his buyers.

D) lose almost all of his buyers.

6) A seller's willingness to accept is the same as his: A) total cost of production. B) fixed cost of production. C) average cost of production. D) marginal cost of production.

D) marginal cost of production.

20) A change in the quantity demanded of a good is: A) the outcome of a change in income. B) represented by a shift to a new demand curve. C) the outcome of a change in tastes and preferences. D) represented by a movement along the demand curve.

D) represented by a movement along the demand curve.

1) The quantity demanded of a good is: A) determined independent of the market price. B) always determined by government intervention. C) the amount of a good that sellers are willing to supply at a given market price. D) the amount of a good that buyers are willing to purchase at a given market price.

D) the amount of a good that buyers are willing to purchase at a given market price.

2) A supply schedule is a table that reports: A) the expected excess supply in the market at different prices. B) the profits earned by producers at different levels of production. C) the different quantities of a good that producers are willing to sell at different income levels. D) the different quantities of a good that producers are willing to sell at different prices.

D) the different quantities of a good that producers are willing to sell at different prices.

3) At the competitive equilibrium: A) the demand curve is tangential to the supply curve. B) the quantity demanded exceeds the quantity supplied of a good. C) the quantity supplied exceeds the quantity demanded of a good. D) the quantity demanded is equal to the quantity supplied of a good.

D) the quantity demanded is equal to the quantity supplied of a good.

11) The Law of Diminishing Marginal Benefit states that: A) lower levels of consumption give lower level of utility. B) the demand for a commodity declines as its price increases. C) the demand for a commodity is more dependent on income than on price. D) the willingness to pay for an additional unit declines as more of a good is consumed.

D) the willingness to pay for an additional unit declines as more of a good is consumed

17) Which of the following is likely to cause the supply curve for steel window frames to shift to the right? A) A decrease in the cost of production of steel due to a new subsidy B) A fall in the number of steel window frame producers due to factory lockouts C) A rise in the market price of steel window frames due to an increase in demand D) An increase in the wages of labor working in steel firms due to demands by trade unions

A) A decrease in the cost of production of steel due to a new subsidy

27) Which of the following factors is likely to lead to an increase in the quantity demanded of pens? A) A fall in the price of pens B) A fall in the price of paper C) A rise in the incomes of all consumers D) A fall in the incomes of all consumers

A) A fall in the price of pens

15) Which of the following is likely to lead to an increase in the quantity supplied of steel? A) A rise in the market price of steel B) An expected increase in the demand for steel in the future C) A fall in the wage rate of labor employed in the steel industry D) An increase in the productivity of capital due to technological innovation

A) A rise in the market price of steel

30) Which of the following is likely to cause the demand curve for cars to shift to the left? A) A rise in the price of gasoline B) An increase in the economy's national income C) An increase in the cost of production leading to an increase in the price of cars D) A rise in the price of cars

A) A rise in the price of gasoline

5) Which of the following statements correctly describes a perfectly competitive market? A) All participants in a perfectly competitive market are price takers. B) Haggling and bargaining is commonly observed in a perfectly competitive market. C) In a perfectly competitive market, individual sellers and buyers can influence the market price. D) Buyers in a perfectly competitive market pay different prices according to their individual demand.

A) All participants in a perfectly competitive market are price takers.

13) Which of the following is likely to lead to a right shift in the supply curve of cotton? A) An increase in labor productivity due to training programs B) A rise in labor costs due to wage demands by labor unions C) An increase in the price of cotton D) A decrease in the price of cotton

A) An increase in labor productivity due to training programs