Econ exam 2- modules 3,4,5

If the supply of a good increased, what would be the effect on the equilibrium price and quantity?

Price would decrease and quantity would increase.

total surplus

The sum of consumer surplus and producer surplus

If a surplus exists in a market we know that the actual price is a. above equilibrium price and quantity supplied is greater than quantity demanded. b. above equilibrium price and quantity demanded is greater than quantity supplied. c. below equilibrium price and quantity demanded is greater than quantity supplied. d. below equilibrium price and quantity supplied is greater than quantity demanded.

a. above equilibrium price and quantity supplied is greater than quantity demanded.

If a major hurricane were to destroy the sugarcane crop in Louisiana, there would be a. decrease in the supply of sugarcane. b. an increase in the supply of sugarcane. c. a decrease in the demand for sugarcane. d. an increase in the demand for sugarcane.

a. decrease in the supply of sugarcane.

Other things constant, an increase in consumer income will a. shift the demand curve for automobiles to the left. b. shift the demand curve for automobiles to the right. c. cause a movement along the demand curve for automobiles, but it will not shift the demand curve. d. lead to a reduction in the supply of automobiles.

b. shift the demand curve for automobiles to the right.

When a shortage occurs in the market for a good, quantity a. demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. b. supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. c. demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. d. supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

a. demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. Your answer

Markets coordinate output decisions by pushing a. up price when there is a shortage. b. down price when quantity demanded exceeds quantity supplied. c. up price when there is a surplus. d. up price when quantity supplied exceeds quantity demanded.

a. up price when there is a shortage.

Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity? -an increase in the price of crude oil, a key ingredient required for the production of gasoline -the introduction of a miracle carburetor that substantially improves the gas mileage of automobiles -a recession that substantially reduces the income of households -an increase in the popularity and use of Sport Utility Vehicles that consume aÊlot of gasoline per mile driven

an increase in the popularity and use of Sport Utility Vehicles that consume aÊlot of gasoline per mile driven

Farmers can produce wheat and/or corn. What will happen in the wheat market if there is an increase in price of corn? a. Wheat supply will increase. b. Wheat supply will decrease. c. Wheat demand will increase. d. Wheat demand will decrease.

b

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? a. An increase in the price of wool shirts and a decrease in the price of raw cotton. b. A decrease in the price of wool shirts and a decrease in the price of raw cotton. c. An increase in the price of wool shirts and an increase in the price of raw cotton. d. A decrease in the price of wool shirts and an increase in the price of raw cotton.

b

Which of the following suggests that the "laws" of supply and demand are being disobeyed? a. Outside forces disturb an equilibrium. b. Persistent shortages or surpluses occur. Your answer c. The market never moves from an equilibrium. d. "Other things" not always are equal.

b. Persistent shortages or surpluses occur. Your answer

When an unusually bad frost reduces the apple crop in Washington state, the price of canned apple juice may rise immediately in supermarkets, even though the juice on the shelves was made from last year's plentiful crop. The invisible hand theory tells us that the profit-seeking merchants who raise their prices in such situations a. are hurting the economy, since the juice now on the shelves was produced at a lower cost. b. are profiting by rationing the juice, which is now more scarce to the consumers willing to pay the most for the now more limited supply. c. are ignoring the motivating function of prices, which the invisible hand theory holds should be set according to the cost paid by the merchant. d. will not actually profit since they are ignoring a basic economic rule: Only raise prices when consumer demand increases.

b. are profiting by rationing the juice, which is now more scarce to the consumers willing to pay the most for the now more limited supply.

Corn and soybeans are alternatives that could be grown by most farmers. A government subsidy for ethanol lead to higher corn prices, this will a. decrease the quantity supplied of soybeans. b. decrease the supply of soybeans. c. have no effect on the supplies of corn and soybeans.

b. decrease the supply of soybeans.

If people expect the price of coffee to rise next month, the demand for coffee will a. decrease now. b. increase now. c. stay the same now and increase next month. d. stay the same now and decrease next month. e. stay the same now and next month.

b. increase now.

When there is excess demand for a product in a market, a. price will tend to fall. b. price must be below the equilibrium price. c. price must be above the equilibrium price. d. producers will reduce output and sales will fall.

b. price must be below the equilibrium price.

If the price of a good is below the equilibrium price, a. suppliers will find inventories building; they will cut output and raise prices. b. suppliers will find inventories being depleted. They will increase production and raise prices. c. the demand curve will shift down until an equilibrium is established at the existing price. d. the supply curve will shift up until an equilibrium is established at the existing price.

b. suppliers will find inventories being depleted. They will increase production and raise prices.

The price of a good will tend to fall when a. there is excess demand for the good. b. there is excess supply of the good. c. demand for the good increases. d. the supply of the good decreases.

b. there is excess supply of the good.

In which statement(s) are "supply" and "quantity supplied" used correctly? (I) "An increase in the price of computers will increase the quantity supplied of computers." (II) "A technological advance that lowers the cost of producing computers will increase the supply of computers."

both statements I and II

Sellers whose costs are less than price are represented by which line segment in the above figure?

bottom left halfway

Buyers who value this good less than price are represented by which line segment in the above figure?

bottom right

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence? a. Gas station owners anticipate consumers will buy more gasoline as gasoline prices increase. b. Gas station owners are attempting to repeal the laws of supply and demand. c. Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost. d. A decline in consumer demand generally causes gas station owners to raise their prices.

c

When competition is present and property rights protected and enforced, market prices will a. discourage profit-seeking business firms from producing efficiently. b. direct entrepreneurs toward production of goods that are inferior in quality. c. encourage self-interested individuals to develop skills that are expected to be valuable in the future. d. always decrease.

c

When economists say the quantity supplied of a product has increased, they mean the a. supply curve has shifted to the left. b. supply curve has shifted to the right. c. price of the product has risen, and consequently, suppliers are producing more of it. d. price of the product has fallen, and consequently, suppliers are producing less of it.

c

Which of the following events would result in an increase in equilibrium price and an uncertain change in equilibrium quantity? a. An increase in supply and an increase in demand. Your answer b. An increase in supply and a decrease in demand. c. A decrease in supply and an increase in demand. d. A decrease in supply and a decrease in demand.

c. A decrease in supply and an increase in demand.

A new study on the health benefits of vitamin C has caused more people to prefer orange juice.Ê At the same time, a freeze in Florida has devastated the orange crop.Ê Given these two effects, what can we say about the equilibrium price and quantity of orange juice? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease; the effect on quantity is ambiguous. c. Equilibrium price will increase; the effect on quantity is ambiguous. Your answer d. Equilibrium quantity will increase; the effect on price is ambiguous.

c. Equilibrium price will increase; the effect on quantity is ambiguous. Your answer

Suppliers recognize there is a shortage in the market for their product when they notice that a. the quantity supplied exceeds the quantity demanded. b. the quantity demanded is falling. c. inventories are falling. d. production exceeds new orders for the product. e. government economists announce a shortage exists.

c. inventories are falling.

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market? a. The quantity of eggs demanded will increase. b. Egg demand will decrease. c. Egg supply will increase. d. Egg supply will decrease.

d

When economists say the quantity supplied of a product has decreased, they mean the a. supply curve has shifted to the left. b. supply curve has shifted to the right. c. price of the product has risen, and consequently, suppliers are producing more of it. d. price of the product has fallen, and consequently, suppliers are producing less of it.

d

An add in the newspaper claims that the price of milk will increase next week.Ê At the same time, a new and improved pasteurization process makes milk production more efficient. Given these two effects, what can we say about the equilibrium price and quantity of milk? a. Equilibrium quantity will decrease, equilibrium price will increase. b. Equilibrium price will decrease; the effect on quantity is ambiguous. Your answer c. Equilibrium price will increase; the effect on quantity is ambiguous. d. Equilibrium quantity will increase; the effect on price is ambiguous.

d. Equilibrium quantity will increase; the effect on price is ambiguous.

In 1986, the price of coffee increased sharply because of a major earthquake and weather-induced crop failures. As a result, conservation was immediately practiced mainly by those consumers who a. were committed to environmental conservation. b. were most aware of the world market situation for coffee from reading the newspaper. c. happened to follow world weather patterns. d. considered the prices of products when they made decisions about buying them.

d. considered the prices of products when they made decisions about buying them.

If consumer tastes are changing more in favor of the consumption of a particular good the a. market demand curve will shift to the left. b. consumer will move up a given demand curve, decreasing the quantity demanded. c. consumer would move down a given demand curve, decreasing the quantity demanded. d. market demand curve would shift to the right. e. consumer would move down a given demand curve, increasing the quantity demanded.

d. market demand curve would shift to the right.

Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation? Supply and demand simultaneously decreased and the shift in _____ was less than the shift in ________

decreased shift in supply was less than the shift in demand.

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

equillibrium

Suppose both the equilibrium price and quantity rise for a particular product. Which of the following best explains this situation? Supply and demand simultaneously __________ and the shift in ______ was less than the _______ in demand.

increased shift in supply was less than the shift in demand.

wheres producer surplus located on supply and demand curve

inside the left, bottom half: the area between the market price and the segment of the supply curve below the equilibrium.

wheres consumer surplus located on supply and demand curve

inside the left, top half

a surplus occurs whenever

price is greater than equilibrium price

A shortage occurs whenever

price is less than equilibrium price

If equilibrium is present in a market,

quantity demanded equals quantity supplied

Free market prices will eliminate

shortages and surpluses

In which statement(s) is "supply" used correctly? (I) "An increase in the price of eggs will increase the supply of eggs." (II) "As the cost of producing eggs rises, the supply of eggs will tend to fall."

statement II only

Given the figure above,Êif the government mandated a price increase from Pe to a higher price, then

total surplus would decrease

Buyers who value this good more than price are represented by which line segment?

upper right