Chapter 3

Refer to Figure 3-22. Which of the four graphs illustrates an increase in quantity supplied? a. A b. B c. C d. D

a. A

Refer to Figure 3-18. Which area represents consumer surplus at a price of P1? a. ABD b. ACF c. BCDE d. DEF

a. ABD

Refer to Figure 3-19. Buyers who value this good more than price are represented by which line segment? a. AC b. CE c. BC d. CD

a. AC

Refer to Figure 3-15. Which area represents producer surplus when the price is P1? a. BCE b. ACF c. ABED d. DEF

a. BCE

Refer to Figure 3-22. Suppose the events depicted in graphs A and C were illustrated together on a single graph. A definitive result of the two events would be a. an increase in the equilibrium quantity. b. an increase in the equilibrium price. c. an instance in which the law of demand fails to hold. d. All of the above are correct.

a. an increase in the equilibrium quantity.

Other things being equal, the effect of an increase in the price of milk would be illustrated by a. an upward movement along the demand curve for milk. b. a leftward shift in the demand curve for milk. c. a downward movement along the demand curve for milk. d. a rightward shift in the demand curve for milk. Hide Feedback

a. an upward movement along the demand curve for milk.

Refer to Figure 3-13. The market for margarine was initially in equilibrium at point e. Other things constant, a decrease in the price of butter, a close substitute for margarine, would likely move the equilibrium in this market toward point a. r. b. s. c. t. d. u.

a. r.

When economists say the demand for a product has decreased, they mean a. the demand curve has shifted to the left. b. the product price has increased, and as a consequence, consumers are buying less of the product. c. consumers are now willing and able to buy more of this product at each possible price. d. the demand curve has shifted to the right.

a. the demand curve has shifted to the left.

When economists say the supply of a product has decreased, they mean that a. the supply curve has shifted to the left. b. the product price has decreased, and as a consequence, suppliers are producing less of the product. c. producers are now willing to sell more of this product at each possible price. d. the supply curve has shifted to the right.

a. the supply curve has shifted to the left.

Producers are willing to offer greater quantities for sale at higher prices because a. they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses b. they will decrease their profits by expanding production at higher prices c. the government orders them to do so d. lower prices attract new firms, which have higher costs of production e. they hire superior quality, higher-priced resources as production expands

a. they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses

Graphically, what impact would an increase in the price of jet fuel have on the market for air travel? a. It would shift the supply curve for air travel to the right. b. It would shift the supply curve for air travel to the left. c. It would shift the demand curve for air travel to the right. d. It would shift the demand curve for air travel to the left.

b. It would shift the supply curve for air travel to the left.

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be a. a decrease in the supply of automobiles, which is a shift to the right of the supply curve. b. a decrease in the supply of automobiles, which is a shift to the left of the supply curve. c. an increase in the supply of automobiles, which is a shift to the right of the supply curve. d. an increase in the supply of automobiles, which is a shift to the left of the supply curve.

b. a decrease in the supply of automobiles, which is a shift to the left of the supply curve.

In Figure 3-3, if the initial demand for margarine were D1, the impact of a decrease in the price of butter, a substitute good for margarine, would be illustrated as a. a shift in the demand curve to D2. b. a shift in the demand curve to D3. c. a movement downward to the right along the original demand curve D1. d. none of the above.

b. a shift in the demand curve to D3.

Refer to Figure 3-17. Area C represents a. the decrease in consumer surplus that results from a downward-sloping demand curve. b. consumer surplus to new consumers who enter the market when the price falls from P2 to P1. c. the increase in producer surplus when quantity sold increases from Q2 to Q1. d. the decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2.

b. consumer surplus to new consumers who enter the market when the price falls from P2 to P1.

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements a. are essentially correct. b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. c. contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. d. contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

b. contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand.

If the supply of a good is relatively elastic, this means that the quantity supplied of the good is a. not very sensitive to the price of the good. b. highly sensitive to the price of the good. c. unrelated to the price of the good. d. none of the above.

b. highly sensitive to the price of the good.

If equilibrium is present in a market, a. there is generally either a shortage or a surplus. b. quantity demanded equals quantity supplied. c. quantity demanded exceeds quantity supplied. d. quantity supplied exceeds quantity demanded.

b. quantity demanded equals quantity supplied.

Refer to Figure 3-14. The gasoline market was initially in equilibrium at point e. Other things constant, a decrease in the price of crude oil, an important ingredient used to produce gasoline, would likely move the equilibrium in this market toward point a. r. b. s. c. t. d. u.

b. s.

Figure 3-4 shows conditions in the market for beef. A reduction in the price of the grain used to feed cattle results in a. the supply curve for beef shifting to the left resulting in higher beef prices and a lower quantity sold. b. the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold. c. the demand curve for beef shifting to the left resulting in lower beef prices and a lower quantity sold. d. the demand curve for beef shifting to the right resulting in higher beef prices and a higher quantity sold.

b. the supply curve for beef shifting to the right resulting in lower beef prices and a higher quantity sold.

Given the supply and demand conditions illustrated in Figure 3-2, the equilibrium price of steak is a. $2 per pound. b. $4 per pound. c. $6 per pound. d. $8 per pound.

c. $6 per pound.

Refer to Figure 3-19. Sellers whose costs are less than price are represented by which line segment? a. AC b. CE c. BC d. CD

c. BC

A cold spell in Florida extensively reduced the orange crop, and as a result, California oranges commanded a higher price. Which of the following statements best explains the situation? a. The supply of Florida oranges fell, causing the supply of California oranges to increase as well as their price. b. The supply of Florida oranges fell, causing the supply of California oranges to decrease and their price to increase. c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase. d. The demand for Florida oranges was reduced by the freeze, causing an increase in the price of California oranges and a greater demand for them.

c. The supply of Florida oranges fell, causing their price to increase and the demand for California oranges to increase.

In Figure 3-3, if the initial demand for margarine were D1, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as a. a shift in the demand curve to D2. b. a shift in the demand curve to D3. c. a movement upward to the left along the original demand curve D1. d. none of the above.

c. a movement upward to the left along the original demand curve D1.

When the market for a good is in equilibrium, a. consumer surplus will equal producer surplus. b. the total value created for consumers will equal the total cost of production for business firms. c. all units valued more highly than the opportunity cost of production will be supplied. d. all units that have value will be produced, regardless of their cost of production.

c. all units valued more highly than the opportunity cost of production will be supplied.

Assume that corn and soybeans are alternatives that could be grown by most farmers. An increase in the price of corn will a. increase the supply of corn. b. increase the supply of soybeans. c. decrease the supply of soybeans. d. decrease the supply of corn. e. have no effect on the supplies of corn and soybeans.

c. decrease the supply of soybeans.

If the quantity of a good supplied is highly sensitive to the price of the good, this is illustrated by a a. demand curve that is relatively flat (more horizontal). b. demand curve that is relatively steep (more vertical). c. supply curve that is relatively flat (more horizontal). d. supply curve that is relatively steep (more vertical).

c. supply curve that is relatively flat (more horizontal).

In Figure 3-6, suppose D1 and S1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to cause a shift from S1 to S2 in the market for ice cream? a. an increase in the price of sugar, an ingredient used to produce ice cream b. a decrease in the price of frozen yogurt, a substitute for ice cream c. abnormally hot weather that temporarily increases consumer desire for ice cream d. a decrease in the price of milk, an ingredient used to produce ice cream

d. a decrease in the price of milk, an ingredient used to produce ice cream

Refer to Figure 3-23. The movement from point A to point B on the graph shows a. a decrease in demand. b. an increase in demand. c. a decrease in quantity demanded. d. an increase in quantity demanded.

d. an increase in quantity demanded.

In which statement(s) is "demand" used correctly? (I) "An increase in the price of hamburgers will reduce the demand for hamburgers." (II) "An increase in the price of hamburgers will reduce the demand for hamburger buns." a. in both statements I and II b. in statement I only c. in statement II only d. in neither statements I nor II

d. in neither statements I nor II

When economists say the quantity demanded of a product has decreased, they mean the a. demand curve has shifted to the left. b. demand curve has shifted to the right. c. price of the product has fallen, and consequently, consumers are buying more of it. d. price of the product has risen, and consequently, consumers are buying less of it.

d. price of the product has risen, and consequently, consumers are buying less of it.

According to the law of supply, as the price of a good falls, a. buyers will buy more of the good. b. buyers will buy less of the good. c. sellers will produce more of the good. d. sellers will produce less of the good.

d. sellers will produce less of the good.