ECON Ch.3 test

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, said they were $29.99. Therefore

Gertie should buy the jeans because the price is less than her reservation price.

Refer to the accompanying figure. If the current market price were $20

there would be an excess demand of 25 units.

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is

greater than $4.50 but no more than $5.

Excess demand occurs

when price is below the equilibrium price.

Suppose that Tom bought a bike from Lauren for $195. If Lauren's reservation price was $185, and Tom's reservation price was $215, the buyer's surplus from this transaction was

$20.

Refer to the given table. Suppose the columns in this table reflect demand and supply. There will be an excess demand of 45 units at a price of

$30.

Refer to the figure below. There would be an excess demand of 8.33 units at a price of ______.

$30.00

Suppose Bianca buys a used a textbook from Sebastian for $110. If Bianca's surplus from this transaction was $20, we can infer that

Bianca's reservation price was $130.

Suppose Bianca buys a used a textbook from Sebastian for $55. If Bianca's surplus from this transaction was $10, we can infer that

Bianca's reservation price was $65.

Assume that Joe is willing to produce a hamburger for $1, and Mary is willing to pay $3 for a hamburger. Which of the following is true?

Joe and Mary can make a mutually beneficial exchange.

Suppose we observe an increase in both the equilibrium price and quantity of bread. This is best explained by

a decrease in the price of butter, a complement to bread.

Refer to the accompanying figure. Assume the market is originally at point W. Movement to point X is the result of

an increase in demand and no change in supply.

A decrease in the price of pizza will lead to

an increase in the quantity of pizza demanded.

It is likely that for most people

coffee and tea are substitutes.

Refer to the accompanying figure, which shows the market for Marvel action figures. Suppose the solid line represents the current supply of Marvel action figures. If retailers learn that a new Marvel movie will be released in several months, this news is likely to cause

current supply to shift to S(A) in anticipation of higher future prices.

Refer to the accompanying figure. An increase in demand is represented by a shift from

curve C to curve D.

Suppose that new scientific studies conclude that high-fiber diets do not reduce the risk of developing colon cancer as well as was previously thought. The likely result will be that the

demand for high-fiber foods will decrease.

Refer to the accompanying figure. At a price of $9, there will be

excess supply and downward pressure on the price.

Suppose demand decreases, but there is no change in supply. As the market reaches its new equilibrium

excess supply will lead the price to fall.

The market equilibrium quantity

is sometimes the socially optimal quantity.

If supply increases and demand decreases, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

lower; uncertain

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One should conclude that

peanut butter and jelly are substitutes.

If the supply curve and the demand curve both shift to the left, then the new equilibrium

quantity will be lower, but the direction of the price change is uncertain.

Refer to the accompanying figure. Suppose the solid line shows the current demand for coffee. In response to a news story explaining that coffee causes heart disease, you should expect

the demand curve to shift to D(A) because some people will stop drinking coffee.

Refer to the accompanying figure. Suppose the solid line shows the current demand curve for coffee. In response to an announcement that much of next year's coffee crop has been destroyed by a storm in Brazil, you should expect

the demand curve to shift to D(B) in anticipation of higher future prices.

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying

the demand curve.

When the supply curve shifts to the left and there is no change in demand

the equilibrium price will rise.

A seller's reservation price is generally equal to

the seller's marginal cost.

Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as

the substitution effect of a price change.

You have noticed that there is a persistent shortage of teachers in an urban school district in your state. Based on this observation, you suspect that

the wage for teachers in that district is lower than the equilibrium wage.

When a market is in equilibrium

there is neither excess demand nor excess supply.

Which of the following would cause an increase in quantity of wheat supplied?

The price farmers receive for their wheat rises.

If supply and demand both decrease, the new equilibrium price will be ______ and the new equilibrium quantity will be ______.

uncertain; lower

Refer to the accompanying figure, which shows the market for cups of coffee. What might cause a shift from the original demand curve to the new demand curve?

An increase in consumers' tastes for coffee

Which of the following is likely to lead to a decrease in the demand for tennis balls?

An increase in the price of tennis racquets.

Which of the following is not a characteristic of rent controls?

Greater availability of apartments

The tendency of markets to automatically gravitate toward equilibrium is an application of the

Incentive Principle.

Which of the following is not a characteristic of a market in equilibrium?

Neither buyers nor sellers want the price to change.

Everyone in the neighborhood has been complaining about the deteriorating condition of the park, but nobody has cleaned it up. Why not?

No single person's benefit from cleaning the park exceeds that person's cost of cleaning it.

Suppose quantity demanded is given by Qd = 100 − P, and quantity supplied is given by Qs = 20 + 3P. In this case, equilibrium price, P*, and equilibrium quantity, Q*, are

P*= $20.00, Q*= 80.

Refer to the accompanying figure. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

They would lower their prices because at $45 there would be excess supply.

Suppose that the equilibrium price of T-shirts increases, and the equilibrium quantity of T-shirts decreases. This is best explained by

a decrease in the supply of T-shirts.

Suppose you observe a decrease in the equilibrium price and quantity of corn. Of the options listed below, this is best explained by

a fall in consumer income assuming corn is a normal good.

Refer to the accompanying figure. At a price of $3, there will be

an excess demand of 5 units.

Refer to the accompanying figure. Assume the market is originally at point Y. Movement to point Z is the result of

an increase in demand and no change in supply.

Refer to the given table. The equilibrium price in this market is

between $40 and $50.

All else equal, a decrease in the demand for oranges will lead to a(n) ______ in equilibrium price and a(n) ______ in equilibrium quantity.

decrease; decrease

The situation described in the book as "smart for one, dumb for all" occurs when

individuals act rationally, but there are still unexploited opportunities for society as a whole.

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are

substitutes.

Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets increases, then

the demand for bus tickets will increase.