Chapter 3 SB Macro Economics

Suppose Martin just bought a guitar from Jackson off Craigslist for $110. Martin's reservation price was $140, and Jackson's reservation price was $100. The seller's surplus from this transaction was ______ dollars.

$10

Given the picture on the right, if buyers currently purchase 7,000 gallons of milk per day, then the reservation price of the last buyer willing to buy milk (the marginal buyer) is:

$2

Given the picture on the right, if sellers currently produce 3,000 gallons of milk per day, then the marginal cost of the 3,000th gallon of milk is:

$2

Given the picture on the right, if sellers currently produce 7,000 gallons of milk per day, then the marginal cost of the 7,000th gallon of milk is:

$4

Refer to the graph as shown. If the price of milk is $4 per gallon, then the consumers would be willing to purchase _____ gallons of milk per day.

3,000

Given the picture on the right, if the price of milk is $2 per gallon, how many gallons per day do sellers wish to sell?

3,000 gallons

Refer to the graph as shown. If the price of milk is $3 per gallon, how many gallons per day are consumers willing to purchase? (enter a number only)

5,000

Which of the following will a seller's reservation price generally be equal to? Select all that apply. A. The marginal cost of producing another unit of the good B. The actual dollar value that a seller is paid for an additional unit C. The smallest dollar amount for which a seller would be willing to sell an additional unit

A. The marginal cost of producing another unit of the good C. The smallest dollar amount for which a seller would be willing to sell an additional unit

If the demand for wine increases as people's incomes go up, then wine is _____. A. a normal good B. an inferior good

A. a normal good

Which of the following is likely to lead to a decrease in the current supply of gold? A. An decrease in the current price of gold. B. An announcement that makes suppliers believe that gold prices are going to increase next year. C. A technological innovation that decreases the cost of mining for gold.

B. An announcement that makes suppliers believe that gold prices are going to increase next year.

If the demand for bread increases when the price of peanut butter falls, then this suggests that bread and peanut butter are _____. A. normal B. complements C. substitutes D. inferior

B. complements

A schedule or graph showing the quantity of a good that sellers wish to sell at each price is known as a _____. A. demand curve B. supply curve

B. supply curve

In the figure to the right, when the price of milk is $3 per gallon. Select all that apply. A. buyers would like to buy more than 5,000 gallons of milk per day. B. suppliers would like to sell more than 5,000 gallons of milk per day. C. the quantity supplied equals the quantity demanded. D. the market is in equilibrium.

C. the quantity supplied equals the quantity demanded. D. the market is in equilibrium.

In the figure on the right, the movement from S to S' represents a(n) A. decrease in quantity supplied. B. decrease in supply. C. increase in quantity supplied. D. increase in supply.

D. increase in supply.

Suppose the demand for gasoline increases at the same time the supply of gasoline falls, then we know that A. the equilibrium price and quantity of gasoline will go up. B. the equilibrium price and quantity of gasoline will go down. C. the equilibrium quantity of gasoline will go down, but the price could go up or down. D. the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down.

D. the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down.

True or false: The socially optimal quantity is that level for which the marginal cost and marginal benefit of the good are the same.

True

A shift of the entire supply curve is considered ______.

a change in supply

A movement along the demand curve is considered ______.

a change in the quantity demanded

A movement along the supply curve is considered ______.

a change in the quantity supplied

A change in quantity demanded is represented by

a movement along the demand curve.

A supply curve is

a schedule or graph showing the quantity of a good that sellers wish to sell at each price

Economic efficiency occurs when

all goods and services are produced and consumed at their socially optimal levels.

If Netflix and Hulu Plus are substitutes, then an increase in the price of Netflix will lead to _____ in the demand for Hulu Plus.

an increase

If the price of sugar falls, this is like to lead to _____ in the supply of candy.

an increase

If an increase in the price of one good, causes a decrease (leftward shift) in the demand for another good, then the two goods are _____.

complements

If the price of blueberries increases, then this should lead the supply of blueberry muffins to _____.

decrease

In the figure on the right, the movement from point A to point B represents a(n)

decrease in quantity demanded.

The change in the quantity demanded of a good that results because a change in the price of a good changes the buyer's purchasing power is known as the _____ of a price change.

income effect

Along a supply curve, if the price of butter increases, the quantity of butter supplied will _____.

increase

In the figure on the right, the movement from point A to point B represents a(n)

increase in quantity supplied.

In the figure on the right, the movement from S to S' represents a(n)

increase in supply.

A maximum allowable price specified by law is a _______.

price ceiling

A change in demand is represented by a ______.

shift in the entire demand curve

When a new technology reduces the cost of production, supply will ?

shift to the right (increase)

The picture on the right represents a _____.

supply curve

Buyer's surplus is

the difference between a buyer's reservation price and the price the buyer actually pays.

Total surplus is

the difference between the buyer's reservation price and the seller's reservation price.

Seller's surplus is:

the difference between the price the seller receives and the seller's reservation price.

In the figure to the right, if the market price for milk is $4 per gallon, then

the excess supply of milk will be 4,000 gallons per day.

The socially optimal quantity is

the quantity of a good that maximizes the total economic surplus that results from producing and consuming the good.

Given the figure on the right, if the government of Pleasantville makes it illegal to charge more than $1,000 per month for a one-bedroom apartment, then

this will have no effect on the market. Reason: A price ceiling (like rent control) will have no effect on a market if it is set above the equilibrium price since there is no tendency for prices to rise above the equilibrium price.

In the figure to the right, what is the equilibrium price?

$3 per gallon

If a government announcement leads home buyers to believe that house prices will go up in the future, then this should lead to _____ in the current demand for houses. A. an increase B. no change C. a decrease

A. an increase

Given that flour is an important input to bread, an increase in the price of flour should lead to: A. an increase in the price of bread. B. an increase in the quantity of bread bought and sold in the market. C. a decrease in the price of bread. D. a decrease in the quantity of bread bought and sold in the market.

A. an increase in the price of bread. D. a decrease in the quantity of bread bought and sold in the market.

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, then this would result in an excess A. demand of 20,000 apartments per month. B. supply of 10,000 apartments per month. C. supply of 20,000 apartments per month. D. demand of 10,000 apartments per month.

A. demand of 20,000 apartments per month.

In the figure on the right, the movement from D to D' represents a(n) A. increase in demand. B. decrease in demand. C. decrease in quantity demanded. D. increase in quantity demanded.

A. increase in demand.

A technological innovation that reduces the cost of extracting natural gas from the earth's surface should: A. increase the quantity of natural gas bought and sold in the market. B. decrease the price of natural gas. C. decrease the quantity of natural gas bought and sold in the market. D. increase the price of natural gas.

A. increase the quantity of natural gas bought and sold in the market. B. decrease the price of natural gas.

If Zach's reservation price for a gallon of milk is $5.53, and the market price for milk is $4.90, then Zach A. will buy a gallon of milk. B. will not buy a gallon of milk.

A. will buy a gallon of milk.

Given the picture on the right, if buyers currently purchase 5,000 gallons of milk per day, then the reservation price of the last buyer willing to buy milk (the marginal buyer) is:

$3

Given the figure on the right, if the government imposes a price ceiling of $2 per gallon on milk, the quantity of milk demanded will equal

7,000 gallons per day

Given the picture on the right, if the price of milk is $4 per gallon, how many gallons per day do sellers wish to sell?

7,000 gallons per day.

A medical breakthrough that decreases the cost of treating cancer should lead to ____ in the supply of cancer treatments.

an increase

The graph shown represents a ______.

demand curve

Given the figure on the right, if the government of Pleasantville makes it unlawful to charge more than $500 per month for a one-bedroom apartment, how many apartments would tenants demand?

35,000 units per month

In the figure to the right, when the market price is $4, there is (SELECT ALL THAT APPLY). A. incentive for sellers to lower their price. B. incentive for buyers to offer a higher price. C. excess demand. D. excess supply.

A. incentive for sellers to lower their price. D. excess supply.

An increase in the supply of corn (a rightward shift in the supply curve) could be the result of _____ in the price of an input to the production of corn.

a decrease

If an increase in the price of one good, causes a increase (rightward shift) in the demand for another good, then the two goods are _____.

substitutes

A schedule or graph showing the quantity of a good that sellers wish to sell at each price is known as a _____.

supply curve

Suppose Martin just bought a guitar from Jackson off Craigslist for $110. Martin's reservation price was $140, and Jackson's reservation price was $100. The buyer's surplus from this transaction was ______ dollars.

$30

List 5 factors that will lead to an increase (right/down shift) in supply

1. A decrease in the cost of materials/labor/other inputs in the production of the good/service 2. An improvement in technology that reduces the cost of producing the good or service 3. An improvement in the weather (especially for agricultural products) 4. An increase in the number of suppliers 5. An expectation of lower prices in the future

List 6 factors that will lead to an increase (right/up shift) in demand

1. A decrease in the price of complements to the good/service 2. An increase in the price of substitutes to the good/service 3. An increase in income (for a normal good) 4. An increase in preference by demanders for the good/service 5. An increase in the population of potential buyers 6. An expectation of higher prices in the future

Refer to the graph as shown. If the price of milk is $2 per gallon, then the consumers would be willing to purchase ______ gallons of milk per day.

7,000

The introduction of rent controls could lead to which of the following? Select all that apply. A. An decrease in the quantity of apartments available for rent. B. An excess supply of available apartments. C. Lower rent for those who live in rent-controlled apartments.

A. An decrease in the quantity of apartments available for rent. C. Lower rent for those who live in rent-controlled apartments.

Which of the following factors will lead to an increase in the demand for a good? A. An expectation of higher prices in the future B. An increase in price C. A decrease in income (for normal goods) D. A decrease in the price of a complement

A. An expectation of higher prices in the future D. A decrease in the price of a complement

If your cousin gets a big raise at work, and as a result, goes out to eat more often, then this suggests that for your cousin restaurant meals are _____. A. an inferior good B. a normal good C. a complementary good D. a substitute good

B. a normal good

The numbers in the table below likely capture the daily _______ tennis balls. A. demand for B. supply of

B. supply of Reason: As the price of a product increases, the quantity supplied increases.

If the demand for apartments decreases when house prices falls, then this suggests that apartments and houses are _____. A. normal B. inferior C. substitutes D. complements

C. substitutes

You observe that the price of ice cream has gone up and that less ice cream is being bought and sold. The best explanation for this is that the A. demand for ice cream has increased. B. demand for ice cream has decreased. C. supply of ice cream has increased. D. supply of ice cream has decreased.

D. supply of ice cream has decreased.

If the price of butter increases, the quantity of butter demanded will ______.

decrease

Given the picture on the right, as the quantity milk bought increases from 3,000 to 5,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.

decreases

Given the picture on the right, as the quantity milk bought increases from 5,000 to 7,000 gallons per day, then the reservation price of the marginal buyer (the last buyer who is willing to buy milk) _____.

decreases

Movements toward efficiency make the total economic pie _____, making it possible for everyone to have a _____ slice.

larger; larger

If butter and popcorn are complements, then a decrease in the price of butter will lead to _____ in the demand for popcorn. A. a decrease B. an increase

B. an increase

Prozac and Wellbutrin are both prescription medications to treat depression. If the price of Prozac increases, then this should lead to: A. a decrease in the number of people who use Wellbutrin. B. a decrease in the price of Wellbutrin. C. an increase in the number of people who use Wellbutrin. D. an increase in the price of Wellbutrin.

C & D

Which of the following factors will lead to an increase in supply? A. An expectation of higher prices in the future. B. A decrease in the number of suppliers. C. A decrease in the cost of inputs to the production process. D. A technological advance that lowers production costs.

C. A decrease in the cost of inputs to the production process. D. A technological advance that lowers production costs.

The most John is willing to pay for a slice of pizza is $2.56. Thus, $2.56 is A. the market price of pizza. B. John's demand for pizza. C. John's reservation price for pizza.

C. John's reservation price for pizza.

In which of the following situations is the market equilibrium likely to be economically inefficient: A. a market in which the consumption of the good entails a significant benefit to others (like vaccinations). B. a market for an inferior good when income increases or for a normal good when income decreases. C. a market in which the production of the good entails a significant cost to others (like pollution from the production process).

A. a market in which the consumption of the good entails a significant benefit to others (like vaccinations). C. a market in which the production of the good entails a significant cost to others (like pollution from the production process).

Suppose that as the price of pencils increases, people buy fewer pencils and instead use pens. The resulting reduction in the quantity of pencils demanded is known as the _____ of a price change. A. income effect B. substitution effect

B. substitution effect

Suppose that people's incomes rise at the same time that the cost of producing cell phones falls. If cell phones are a normal good, then we know that A. the equilibrium price and quantity of cell phones will go up. B. the equilibrium quantity of cell phones will go up, but the price could go up or down. C. the price of cell phones will fall, but the equilibrium quantity could go up or down. D. the equilibrium price and quantity of cell phones will go down.

B. the equilibrium quantity of cell phones will go up, but the price could go up or down.

If Jason's reservation price for a pound of apples is $1.40, and the market price for a pound of apples is $1.52, then Jason A. will buy a pound of apples. B. will not buy a pound of apples.

B. will not buy a pound of apples.

The smallest amount you would have to pay Bronx Pizza to get them sell an additional cheese pizza is $8.84. Thus, $8.84 is A. Bronx Pizza's supply of pizza. B. Bronx Pizza's reservation price. C. the market price of pizza.

B. Bronx Pizza's reservation price.

If hot dogs and ketchup are complements, then an increase in the price of ketchup will lead to? Select all that apply. A. an increase in the number of hot dogs bought and sold in the market. B. an increase in the price of hot dogs. C. a decrease in the number of hot dogs bought and sold in the market. D. a decrease in the price of hot dogs.

C. a decrease in the number of hot dogs bought and sold in the market. D. a decrease in the price of hot dogs.

If Hulu Plus and Netflix are substitutes, then an increase in the price of Netflix should lead to? Select all that apply. A. a decrease in the number of people who subscribe to Hulu Plus. B. a decrease in the price of Hulu Plus. C. an increase in the number of people who subscribe to Hulu Plus. D. an increase in the price of Hulu Plus.

C. an increase in the number of people who subscribe to Hulu Plus. D. an increase in the price of Hulu Plus.

You observe that the price of books has gone down at the same time that the number of books bought and sold in the market has decreased. The best explanation for this is that the: A. demand for books has increased. B. supply of books has increased. C. supply of books has decreased. D. demand for books has decreased.

D. demand for books has decreased.

If people tend to go swimming more in the summer than in the winter, then we would expect _____. A. the supply of swimsuits to be higher in the summer B. the price of swimsuits to be higher in the summer C. the demand for swimsuits to be higher in the summer D. the quantity of swimsuits bought and sold to be higher in the summer

B. the price of swimsuits to be higher in the summer C. the demand for swimsuits to be higher in the summer D. the quantity of swimsuits bought and sold to be higher in the summer

Suppose the demand for gasoline increases at the same time the supply of gasoline falls, then we know that A. the equilibrium price and quantity of gasoline will go up. B. the equilibrium price and quantity of gasoline will go down. C. the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down. D. the equilibrium quantity of gasoline will go down, but the price could go up or down.

C. the equilibrium price of gasoline will go up but the equilibrium quantity could go up or down.

Suppose that as the price of coffee increases, consumers purchase less coffee in part because they can no longer afford to buy as much coffee as they used to. This reduction in the quantity of coffee demanded is known as the _____ of a price change. A. income effect B. substitution effect

A. income effect

Relative to the summer months, people have less exposure to the sun during the winter. Thus, relative to the summer, we can expect _____. A. the demand for sunscreen to be lower in the winter B. the supply of sunscreen to be lower in the winter C. the price of sunscreen to be lower in the winter D. the amount of sunscreen bought and sold in the market to be lower in the winter

A. the demand for sunscreen to be lower in the winter C. the price of sunscreen to be lower in the winter D. the amount of sunscreen bought and sold in the market to be lower in the winter

The introduction of rent controls could lead to which of the following? Select all that apply. A. An increase in the quantity of apartments available for rent. B. Discrimination against tenants on the basis of race, religion or other factors. C. Poorer maintenance of rent-controlled apartments.

B. Discrimination against tenants on the basis of race, religion or other factors. C. Poorer maintenance of rent-controlled apartments.

Two goods are substitutes if A. an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other. B. an increase in the price of one good, leads to an increase (rightward shift) in the demand for the other.

B. an increase in the price of one good, leads to an increase (rightward shift) in the demand for the other.

Suppose that as the price of movie tickets increases, people go to the movies less often and instead rent movies at home. The resulting reduction in the quantity of movies demanded is known as the _____ of a price change.

substitution effect

Which of the following factors will lead to a decrease in demand? A. A decrease in the population of potential buyers. B. A decrease in the price of a substitute. C. An increase in consumers' income if the good is a normal good. D. An expectation of higher prices in the future.

A. A decrease in the population of potential buyers. B. A decrease in the price of a substitute.

Which of the following is likely to lead to an increase in the demand for cell phones? A. A decrease in the price of cell phone apps (a complement to cell phones). B. A reduction in the cost of manufacturing cell phones. C. An increase in income (assuming cell phones are a normal good).

A. A decrease in the price of cell phone apps (a complement to cell phones). C. An increase in income (assuming cell phones are a normal good).

All else equal, the introduction of tractors into farming in the early 1900s is likely to have: A. increased the price of agricultural products. B. decreased the price of agricultural products. C. increased the quantity of agricultural products bought and sold in the market. D. decreased the quantity of agricultural products being bought and sold in the market.

B. decreased the price of agricultural products. C. increased the quantity of agricultural products bought and sold in the market.

In the figure to the right, when the market price is $2, there is an (select all that apply) A. incentive for sellers to lower their price. B. incentive for buyers to offer a higher price. C. excess demand. D. excess supply.

B. incentive for buyers to offer a higher price. C. excess demand.

In the figure to the right, if the market price for milk is $2 per gallon, then: A. the excess demand for milk will be 7,000 gallons per day. B. the excess demand for milk will be 4,000 gallons per day. C. the excess supply of milk will be 3,000 gallons per day. D. the excess supply of milk will be 4,000 gallons per day.

B. the excess demand for milk will be 4,000 gallons per day.

If more people decide to go to medical school because of the popular television show "Grey's Anatomy", then this should lead to _____ in the supply of doctors.

an increase

Two goods are complements if A. an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other. B. an increase in the price of one good, leads to an increase (rightward shift) in the demand for the other.

A. an increase in the price of one good, leads to a decrease (leftward shift) in the demand for the other.

Which of the following factors will lead to an increase in the demand for a good? A. A decrease in income (for normal goods) B. An expectation of higher prices in the future C. A decrease in the price of a complement D. An increase in price

B. An expectation of higher prices in the future C. A decrease in the price of a complement

A buyer's reservation price is the A. the actual dollar amount the buyer pays for a good. B. the minimum amount the buyer would be willing to pay for a good. C. largest dollar amount the buyer would be willing to pay for a good.

C. largest dollar amount the buyer would be willing to pay for a good.