Problem Set 4 Chapter 3

20. What might cause a demand function to shift to the right? A. An increase in the price of a substitute. B. An increase in the product's own price. C. An increase in the price of a complement. D. A decrease in the price of a substitute.

A. An increase in the price of a substitute.

22. If the demand for Personal Computers (PC) shifts to the right (up) as consumers' incomes rise, PC's are A. inferior goods. B. complement goods. C. normal goods. D. substitute goods.

C. normal goods.

5. The technology used to manufacture Personal Computers (PCs) has improved. The likely result would be A. an increase in supply of PCs. B. an increase in quantity supplied of PCs. C. a decrease in supply of PCs. D. a decrease in quantity supplied of PCs.

A. an increase in supply of PCs.

13. Refer to the figure above. At a price of $3, the market will experience ______________ in the amount of _________ units. A. excess demand; 5 units B. excess supply; 7 units C. equilibrium; 4 units D. excess supply; 3 units

A. excess demand; 5 units

1. Buyers and sellers of a particular good comprise the A. market for the good. B. demand for the good. C. supply for the good. D. production possibilities curve for the good.

A. market for the good.

11. Refer to the figure above. The equilibrium price and quantity for this market is A. $8, 6. B. $6, 4. C. $4, 6. D. $2, 8.

B. $6, 4.

8. Which of the following is NOT a characteristic of a market in equilibrium? A. Excess supply is zero. B. All consumers are able to purchase as much as they wish. C. Excess demand is zero. D. The equilibrium price is stable, i.e., there is no pressure for it to change.

B. All consumers are able to purchase as much as they wish.

25. Refer to the figure above. What might cause Supply to shift from the Original Supply to the New Supply? A. A storm in South America wipes out the entire coffee crop. B. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee. C. A news report that coffee consumption greatly increases productivity. D. An increase in the price of tea.

B. New technology reduces the amount of coffee beans necessary to make a good-tasting pot of coffee.

19. In the market for office workers A. there are no substitutes because each human is unique. B. computers and desks are complements. C. an increase in wages will increase the number of workers demanded. D. a decrease in wages will shift the demand for workers to the left.

B. computers and desks are complements.

18. If the demand for a good decreases as income decreases, it is a(n) A. complementary good. B. normal good. C. inferior good. D. substitute good.

B. normal good.

10. If the market for Sport Utility Vehicles has excess supply, then one can say that A. supply is greater than demand. B. quantity supplied is greater than quantity demanded. C. demand is greater than supply. D. quantity demanded is greater than quantity supplied

B. quantity supplied is greater than quantity demanded.

26. Refer to the figure above. In this market, if everyone's reservation price for a cup of coffee increased by $1.00 A. the equilibrium price would increase by $1.00. B. the equilibrium price would increase by less than $1.00. C. the equilibrium price would increase by more than $1.00. D. the equilibrium price would not change.

B. the equilibrium price would increase by less than $1.00.

7. Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 can also be called her A. marginal revenue. B. equilibrium price. C. reservation price. D. producers surplus.

C. reservation price.

24. Refer to the figure above. In the original market equilibrium A. 50 cups of coffee are sold for $1.00 each. B. 50 cups of coffee are sold for $2.50 each. C. 40 cups of coffee are sold for $2.00 each. D. 60 cups of coffee are sold for $1.50 each.

C. 40 cups of coffee are sold for $2.00 each.

14. Which of following is not true of an equilibrium price? A. Consumers who are willing to pay the equilibrium price can acquire the good. B. It measures the value of the last unit sold to consumers. C. It is always a fair and just price. D. Firms who are willing to accept the equilibrium price can sell what they produce.

C. It is always a fair and just price.

16. In a market where government has set the price below the equilibrium price, one might expect A. quantity demanded to equal quantity supplied. B. excess supply. C. a black market to develop as individuals try to take advantage of unexploited opportunities. D. quantity supplied to surpass quantity demanded.

C. a black market to develop as individuals try to take advantage of unexploited opportunities.

21. Whether or not a good can be classified as a complement depends on whether A. most people tend to consume the goods together. B. no substitutes exist C. an increase in demand for one good follows a decrease in the price of the other. D. an increase in demand for one good follows an increase in the price of the other.

C. an increase in demand for one good follows a decrease in the price of the other.

27. Refer to the figure above. Suppose the coffee lobby convinced the legislature to impose a price control requiring that coffee prices must be at least $2.50 at a time when the original (bold) demand function and supply function were applicable. The most likely result would be A. a short term excess demand for coffee, followed by an increase in price. B. excess demand for coffee that would not correct itself because price is set by law. C. excess supply of coffee that would not correct itself because price is set by law. D. new equilibrium at a price of $2.50 and a quantity of 50 cups.

C. excess supply of coffee that would not correct itself because price is set by law.

2. The demand curve illustrates the fact that consumers A. tend to purchase more of a good as its price rises. B. purchase name brand products more frequently than generic products. C. tend to purchase more of a good as its price falls. D. purchase more of a good as their incomes rise.

C. tend to purchase more of a good as its price falls.

4. As coffee becomes more expensive, Joe starts drinking tea, therefore quantity demanded for coffee decreases. This is called A. the income effect. B. the change in equilibrium. C. the substitution effect. D. a shift in the demand curve.

C. the substitution effect.

3. Which of the following is NOT true of a demand curve? A. It has negative slope. B. It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant. C. It relates the price of an item to the quantity demanded of that item. D. It shows how an increase in price leads to an increase in quantity demanded of a good.

D. It shows how an increase in price leads to an increase in quantity demanded of a good.

9. A market in disequilibrium would feature A. a stable price. B. consumers able to purchase all they wish at the market price. C. a stable quantity. D. either excess supply or excess demand.

D. either excess supply or excess demand.

12. Refer to the figure above. At a price of $9, the market will experience ______________ in the amount of __________ units. A. excess demand, 5 units B. excess supply, 6 units C. equilibrium, 4 units D. excess supply, 5 units

D. excess supply, 5 units

17. "As the price of personal computers continues to fall, demand increases." This headline is inaccurate because A. a change in the price of personal computers shifts the demand curve. B. a change in the price of personal computers shifts the supply curve. C. the statement is backwards: increased demand leads to lower prices. D. falling prices for personal computers increases quantity demanded, not demand.

D. falling prices for personal computers increases quantity demanded, not demand.

15. As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are a(n) A. normal good. B. complement good. C. substitute good. D. inferior good.

D. inferior good.

23. As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are a(n) A. normal good. B. complement good. C. substitute good. D. inferior good.

D. inferior good.

6. Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping. A. goods; not B. more; downward C. less; upward D. more; upward

D. more; upward