ECON 201 Chapter 3
Refer to the diagram above, which shows three supply curves for corn. Which of the following would cause the supply of corn to shift from S1 to S3?
A. a decrease in the cost of equipment used in corn farming B. an increase in the price of soybeans C. a decrease in the price of corn D. an increase in the number of acres of farmland allocated to corn ANSWER: B. an increase in the price of soybeans
Price Per Quantity Demanded Per Year Quantity Supplied Per Year $5 2,000 0 $10 1,800 300 $15 1,600 600 $20 1,400 900 $25 1,200 1,200 $30 1,000 1,500 Refer to the above table. At a price of $15 per unit, which of the following would exist?
A. a shortage of 1,600 units B. a surplus of 1,000 units C. a shortage of 1,000 units D. a surplus of 600 units ANSWER: C. a shortage of 1,000 units
In a market with supply and demand curves as shown above, a price ceiling of $2.50 will result in
A. a surplus of 10 units. B. a shortage of 10 units. C. no shortage or surplus. D. a black market price greater than $2.50. ANSWER: C. no shortage or surplus.
In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by
A. an increase in the cost of making donuts. B. an increase in the price of coffee. C. consumers expecting donut prices to fall. D. a change in buyer tastes. ANSWER: D. a change in buyer tastes.
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. ANSWER: D. the income effect.
If the demand curve for product B shifts to the right as the price of product A declines, then
A. both A and B are inferior goods. B. A is a superior good and B is an inferior good. C. A is an inferior good and B is a superior good. D. A and B are complementary goods. ANSWER:D. A and B are complementary goods.
Suppose that in each of four successive years, producers sell more of their product and at lower prices. This could be explained
A. by small annual increases in supply accompanied by large annual increases in demand. B. in terms of a stable supply curve and increasing demand. C. in terms of a stable demand curve and increasing supply. D.mas an exception to the law of supply. ANSWER: C. in terms of a stable demand curve and increasing supply.
A shift to the right in the demand curve for product A can be most reasonably explained by saying that
A. consumer incomes have declined, and consumers now want to buy less of A at each possible price. B. the price of A has increased and, as a result, consumers want to purchase less of it. C. consumer preferences have changed in favor of A so they now want to buy more at each possible price. D. the price of A has declined and, as a result, consumers want to purchase more of it. ANSWER: C. consumer preferences have changed in favor of A so they now want to buy more at each possible price.
Two months ago, the Maryville Shirt company sold 2,000 shirts at $30 per shirt. Last month the company raised its price to $35 per shirt and sold 3,000 shirts. Evidently the company experienced a(n)
A. decrease in demand. B. increase in demand. C. decrease in supply. D. increase in supply. ANSWER: B. increase in demand.
The horizontal axis of a graph that shows a market demand curve indicates the
A. different prices at which various levels of output can be sold. B. number of consumers who are in the market for this product. C. various quantities of output at which the market will be cleared. D. quantities which consumers will be willing and able to buy at various prices. ANSWER: D. quantities which consumers will be willing and able to buy at various prices.
The scalping of tickets for an event is a sign that the stated price on the ticket is
A. equal to the quantity demanded. B. equal to the market clearing price. C. below the market clearing price. D. above the market clearing price. ANSWER: C. below the market clearing price.
With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will
A. increase equilibrium price and quantity if the product is a normal good. B. decrease equilibrium price and quantity if the product is a normal good. C. have no effect on equilibrium price and quantity. D. reduce the quantity demanded but not shift the demand curve. ANSWER: A. increase equilibrium price and quantity if the product is a normal good.
A headline reads "Perfect Weather Brings Record-High Coffee Harvest." This situation would lead to a(n)
A. increase in the price and in the quantity purchased of coffee. B. decrease in the price and in the quantity purchased of coffee. C. increase in the price and a decrease in the quantity purchased of coffee. D. decrease in the price and an increase in quantity purchased of coffee. ANSWER: D. decrease in the price and an increase in quantity purchased of coffee.
One reason that the quantity demanded of a good increases when its price falls is that the
A. price decline shifts the supply curve to the left. B. lower price shifts the demand curve to the left. C. lower price shifts the demand curve to the right. D. lower price increases the real incomes of buyers, enabling them to buy more. ANSWER: D. lower price increases the real incomes of buyers, enabling them to buy more.
Black markets are associated with
A. price floors and the resulting product surpluses. B. price floors and the resulting product shortages. C. ceiling prices and the resulting product shortages. D. ceiling prices and the resulting product surpluses. ANSWER: C. ceiling prices and the resulting product shortages.
Answer the question based on the given supply and demand data for wheat. Bushels Demanded Per Price Per Bushel Bushels Supplied Per Month Month 45 $5 77 50 $4 73 56 $3 68 61 $2 61 67 $1 57 If price was initially $4 and free to fluctuate, we would expect the
A. quantity supplied to continue to exceed the quantity demanded. B. quantity of wheat supplied to decline as a result of the subsequent price change. C. quantity of wheat demanded to fall as a result of the subsequent price change. D. price of wheat to rise. ANSWER: B. quantity of wheat supplied to decline as a result of the subsequent price change.
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. ANSWER: B. raise their price and increase their quantity supplied.
Which of the following is a determinant of supply?
A. tastes and preferences of buyers B. price of a complementary good C. consumer income D. product taxes and subsidies ANSWER: D. product taxes and subsidies
When tickets are "scalped," then in this market transaction
A. the buyer benefits, but the seller does not. B. the seller benefits, but the buyer does not. C. both the buyer and seller benefit. D. neither the buyer nor seller benefit, because it is illegal. ANSWER: C. both the buyer and seller benefit.
A black market could arise as a result of
A. the imposition of a legal price floor below the equilibrium price. B. the imposition of a legal price ceiling above the equilibrium price. C. the imposition of a legal price floor at the equilibrium price. D. Answer the imposition of a legal price ceiling below the equilibrium price. ANSWER: D. Answer the imposition of a legal price ceiling below the equilibrium price.
Answer the question based on the given supply and demand data for wheat. Bushels Demanded Per Price Per Bushel Bushels Supplied Per Month Month 45 $5 77 50 $4 73 56 $3 68 61 $2 61 67 $1 57 If the price in this market was $4,
A. the market would clear; quantity demanded would equal quantity supplied. B. buyers would want to purchase more wheat than is currently being supplied. C. farmers would not be able to sell all their wheat. D. there would be a shortage of wheat. ANSWER: C. farmers would not be able to sell all their wheat.
The graph below shows the market for tickets to a "Final Four" sports event. Assume that there is only one kind of ticket to the event. The supply curve in this event-ticket market is vertical because
A. the organizers are selling a fixed number of tickets. B. the organizers are charging a fixed price for the tickets. C. there are a fixed number of buyers in the market. D. the government has regulated the selling of the tickets. ANSWER:A. the organizers are selling a fixed number of tickets.
At the point where the demand and supply curves for a product intersect,
A. the selling price and the buying price need not be equal. B. the market may, or may not, be in equilibrium. C. either a shortage or a surplus of the product might exist, depending on the degree of competition. D. the quantity that consumers want to purchase and the amount producers choose to sell are the same. ANSWER: D. the quantity that consumers want to purchase and the amount producers choose to sell are the same.
A price ceiling means that
A. there is currently a surplus of the relevant product. B. government is imposing a legal price that is typically below the equilibrium price. C. government wants to stop a deflationary spiral. D. government is imposing a legal price that is typically above the equilibrium price. ANSWER: B. government is imposing a legal price that is typically below the equilibrium price.
In order to derive the market supply curve from individual supply curves, we add up the
A. various prices that individual sellers are charging for the product. B. various quantities that individual sellers want to sell at specific price levels. C. total number of sellers in the market at a given time. D. costs that all individual sellers incur in producing the product. ANSWER: B. various quantities that individual sellers want to sell at specific price levels.
(1) (2) (3) (4) (5) Qd Qd Price Qs Qs 50 40 $10 70 80 60 50 $9 60 70 80 60 $8 50 60 90 70 $7 40 50 100 80 $6 30 40 Refer to the 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. $8 and 60 units. ANSWER: B. $9 and 60 units.
Answer the question based on the following supply and demand schedules in units per week for a product. Price Quantity Demanded Quantity Supplied $60 100 400 $50 140 340 $40 180 280 $30 220 220 $20 260 160 $10 300 100 If the government introduced a guaranteed price floor of $40 and agreed to purchase surplus output, then the government's total support payments to producers would be
A. $3,000 per week. B. $3,500 per week. C. $4,000 per week. D. $2,500 per week. ANSWER: C. $4,000 per week.
Refer to the 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. F and C, respectively. B. G and B, respectively. C. F and A, respectively. D. E and B, respectively. ANSWER: A. F and C, respectively.
"In the corn market, demand 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, "The price of corn rises and falls in response to changes in supply and demand." C. In the first statement, "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." D. In both statements. ANSWER: B. In the second statement, "The price of corn rises and falls in response to changes in supply and demand."
Which of the following is a consequence of rent controls established to keep housing affordable for the poor?
A. Less rental housing is available, as prospective landlords find it unprofitable to rent at restricted prices. B. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties. C. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled. D. All of these choices are correct. ANSWER: D. All of these choices are correct.
(Advanced analysis) The equation for the supply curve in the diagram shown is approximately
A. P = 4 + 0.3 Q. B. P = 4 + 2 Q. C. P = 4 + 0.5 Q. D. P = 4 − 3 Q. ANSWER: A. P = 4 + 0.3 Q.
Which of the following statements is true about price ceilings?
A. Price ceilings create surpluses for goods but shortages for services. B. Price ceilings cause goods to be rationed by some other means than legally determined market prices. C. Ration coupons are the only way to ration goods when price ceilings are in place. D. All of these choices are correct. ANSWER: B. Price ceilings cause goods to be rationed by some other means than legally determined market prices.
Which of the following statements about ticket scalping is correct?
A. Scalping tends to be prevalent when there is a surplus of tickets. B. Scalping tends to be prevalent when there is a shortage of tickets. C. Scalping benefits only one party—the sellers—but not the buyers. D. Scalping benefits only one party—the buyers—but not the sellers. ANSWER: B. Scalping tends to be prevalent when there is a shortage of tickets.
The "dynamic pricing" model used by the ride-sharing firm Uber, along with a few other firms, illustrates which of the following?
A. When there is a shortage in a market, the equilibrium price will rise. B.Once the equilibrium price is reached, it will remain there for at least several days. C. Since actual quantity bought always equals actual quantity sold, the market is always at equilibrium. D. When there is surplus in a market, the equilibrium price will rise. ANSWER: A. When there is shortage in a market, the equilibrium price will rise.
Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by
A. a decline in the number of buyers in the market. B. a decline in the price of a substitute good. C. an increase in incomes if the product is a normal good. D. an increase in incomes if the product is an inferior good. ANSWER: C. an increase in incomes if the product is a normal good.