econ chap 3

Chapter 03 - Demand, Supply, and Market Equilibrium

Chapter 03

Chapter 03 Demand, Supply, and Market Equilibrium Answer Key

Multiple Choice Questions

1. A market: A. reflects upsloping demand and downsloping supply curves.B. entails the exchange of goods, but not services.C. is an institution that brings together buyers and sellers.D. always requires face-to-face contact between buyer and seller.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-1Topic: Demand and demand curve

2. Markets explained on the basis of supply and demand: A. assume many buyers and many sellers of a standardized product.B. assume market power so that buyers and sellers bargain with one another.C. do not exist in the real-world economy.D. are approximated by markets in which a single seller determines price.


3. The law of demand states that: A. price and quantity demanded are inversely related.B. the larger the number of buyers in a market, the lower will be product price.C. price and quantity demanded are directly related.D. consumers will buy more of a product at high prices than at low prices.


3-1


4. Graphically, the market demand curve is: A. steeper than any individual demand curve that is part of it.B. greater than the sum of the individual demand curves.C. the horizontal sum of individual demand curves.D. the vertical sum of individual demand curves.


5. The demand curve shows the relationship between: A. money income and quantity demanded.B. price and production costs.C. price and quantity demanded.D. consumer tastes and the quantity demanded.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-1Topic: Demand and demand curve

6. Economists use the term "demand" to refer to: A. a particular price-quantity combination on a stable demand curve.B. the total amount spent on a particular commodity over a stipulated time period.C. an upsloping line on a graph that relates consumer purchases and product price.D. a schedule of various combinations of market prices and amounts demanded.


3-2


7. The relationship between quantity supplied and price is _____ and the relationship between quantity demanded and price is _____. A. direct, inverseB. inverse, directC. inverse, inverseD. direct, direct

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-1Learning Objective: 3-2Topic: Demand and demand curve

8. When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes: A. the cost effect.B. the inflationary effect.C. the income effect.D. the substitution effect.


9. A demand curve: A. shows the relationship between price and quantity supplied.B. indicates the quantity demanded at each price in a series of prices.C. graphs as an upsloping line.D. shows the relationship between income and spending.


3-3


10. In presenting the idea of a demand curve, economists presume that the most important variable in determining the quantity demanded is: A. the price of the product itself.B. consumer income.C. the prices of related goods.D. consumer tastes.


11. An increase in the price of a product will reduce the amount of it purchased because: A. supply curves are upsloping.B. the higher price means that real incomes have risen.C. consumers will substitute other products for the one whose price has risen.D. consumers substitute relatively high-priced for relatively low-priced products.


12. The income and substitution effects account for: A. the upward sloping supply curve.B. the downward sloping demand curve.C. movements along a given supply curve.D. the "other things equal" assumption.


3-4


13. When the price of a product rises, consumers shift their purchases to other products whose prices are now relatively lower. This statement describes: A. an inferior good.B. the rationing function of prices.C. the substitution effect.D. the income effect.


14. When the price of a product falls, the purchasing power of our money income rises and thus permits consumers to purchase more of the product. This statement describes: A. an inferior good.B. the rationing function of prices.C. the substitution effect.D. the income effect.


3-5


15. (Advanced analysis) The equation for the demand curve in the below diagram:

A. is P = 70 - Q.B. is P = 35 - 2Q.C. is P = 35 - .5Q.D. cannot be determined from the information given.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Demand and demand curve

16. When product prices change, consumers are inclined to purchase larger amounts of the now cheaper products and less of the now more expensive products. This describes: A. the cost effect.B. the price effect.C. the income effect.D. the substitution effect.


3-6


17. The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is: A. price.B. expectations.C. preferences.D. incomes.


18. One reason that the quantity demanded of a good increases when its price falls is that the: A. price decline shifts the supply curve to the left.B. lower price shifts the demand curve to the left.C. lower price shifts the demand curve to the right.D. lower price increases the real incomes of buyers, enabling them to buy more.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Demand and demand curve

19. When the price of Nike soccer balls fell, Ronaldo purchased more Nike soccer balls, and fewer Adidas soccer balls. Which of the following best explains Ronaldo's decision to buy more Nike soccer balls? A. the substitution effectB. the income effectC. an increase in the demand for Nike soccer ballsD. the price effect

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Status: NewTopic: Demand and demand curve

3-7


20. Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by: A. the substitution effect.B. the income effect.C. the price effect.D. a rightward shift in the demand curve for hamburgers.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Status: NewTopic: Demand and demand curve

21. A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that: A. beer and marijuana are substitute goods.B. beer and marijuana are complementary goods.C. beer is an inferior good.D. marijuana is an inferior good.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Determinants of demand

22. In the past few years, the demand for donuts has greatly increased. This increase in demand might best be explained by: A. an increase in the cost of making donuts.B. an increase in the price of coffee.C. consumers expecting donut prices to fall.D. a change in buyer tastes.


3-8


23. Which of the following will not cause the demand for product K to change? A. a change in the price of close-substitute product JB. an increase in consumer incomesC. a change in the price of KD. a change in consumer tastes

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-1Topic: Determinants of demand

24. Which of the following would not shift the demand curve for beef? A. a widely publicized study that indicates beef increases one's cholesterolB. a reduction in the price of cattle feedC. an effective advertising campaign by pork producersD. a change in the incomes of beef consumers

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Topic: Determinants of demand

25. In 2007 the price of oil increased, which in turn caused the price of natural gas to rise. This can best be explained by saying that oil and natural gas are: A. complementary goods and the higher price for oil increased the demand for natural gas.B. substitute goods and the higher price for oil increased the demand for natural gas.C. complementary goods and the higher price for oil decreased the supply of natural gas.D. substitute goods and the higher price for oil decreased the supply of natural gas.


3-9


26. An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that: A. there are many goods that are substitutes for bicycles.B. there are many goods that are complementary to bicycles.C. there are few goods that are substitutes for bicycles.D. bicycles are normal goods.


27. A rightward shift in the demand curve for product C might be caused by: A. an increase in income if C is an inferior good.B. a decrease in income if C is a normal good.C. a decrease in the price of a product that is a close substitute for C.D. a decrease in the price of a product that is complementary to C.


28. If two goods are complements: A. they are consumed independently.B. an increase in the price of one will increase the demand for the other.C. a decrease in the price of one will increase the demand for the other.D. they are necessarily inferior goods.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-1Topic: Determinants of demand

3-10


29. DVD players and DVDs are: A. complementary goods.B. substitute goods.C. independent goods.D. inferior goods.


30. If the demand curve for product B shifts to the right as the price of product A declines, then: A. both A and B are inferior goods.B. A is a superior good and B is an inferior good.C. A is an inferior good and B is a superior good.D. A and B are complementary goods.


31. If the price of product L increases, the demand curve for close-substitute product J will: A. shift downward toward the horizontal axis.B. shift to the left.C. shift to the right.D. remain unchanged.


3-11


32. If the price of K declines, the demand curve for the complementary product J will: A. shift to the left.B. shift to the right.C. decrease.D. remain unchanged.


33. Which of the following is most likely to be an inferior good? A. fur coatsB. ocean cruisesC. used clothingD. steak


34. Which of the following statements is correct? A. An increase in the price of C will decrease the demand for complementary product D.B. A decrease in income will decrease the demand for an inferior good.C. An increase in income will reduce the demand for a normal good.D. A decline in the price of X will increase the demand for substitute product Y.


3-12


35. A shift to the right in the demand curve for product A can be most reasonably explained by saying that: A. consumer incomes have declined and they now want to buy less of A at each possible price.B. the price of A has increased and, as a result, consumers want to purchase less of it.C. consumer preferences have changed in favor of A so that they now want to buy more at each possible price.D. the price of A has declined and, as a result, consumers want to purchase more of it.


36. If L and M are complementary goods, an increase in the price of L will result in: A. an increase in the sales of L.B. no change in either the price or sales of M.C. a decrease in the sales of M.D. an increase in the sales of M.


37. Which of the following will cause the demand curve for product A to shift to the left? A. population growth that causes an expansion in the number of persons consuming A.B. an increase in money income if A is a normal good.C. a decrease in the price of complementary product C.D. an increase in money income if A is an inferior good.


3-13


38. If X is a normal good, a rise in money income will shift the: A. supply curve for X to the left.B. supply curve for X to the right.C. demand curve for X to the left.D. demand curve for X to the right.


39. If Z is an inferior good, an increase in money income will shift the: A. supply curve for Z to the left.B. supply curve for Z to the right.C. demand curve for Z to the left.D. demand curve for Z to the right.


40. College students living off-campus frequently consume large amounts of ramen noodles and boxed macaroni and cheese. When they finish school and start their careers, their consumption of both goods frequently declines. This suggests that ramen noodles and boxed macaroni and cheese are: A. inferior goods.B. normal goods.C. complementary goods.D. substitute goods.


3-14


41. Other things equal, which of the following might shift the demand curve for gasoline to the left? A. the discovery of vast new oil reserves in MontanaB. the development of a low-cost electric automobileC. an increase in the price of train and air transportationD. a large decline in the price of automobiles


42. An increase in consumer incomes will: A. increase the demand for an inferior good.B. increase the supply of an inferior good.C. increase the demand for a normal good.D. decrease the supply of a normal good.


43. Tennis rackets and ballpoint pens are: A. substitute goods.B. complementary goods.C. inferior goods.D. independent goods.


3-15


44. The demand for most products varies directly with changes in consumer incomes. Such products are known as: A. complementary goods.B. competitive goods.C. inferior goods.D. normal goods.


45. Assume the demand curve for product X shifts to the right. This might be caused by: A. a decline in income if X is an inferior good.B. a decline in the price of Z if X and Z are substitute goods.C. a change in consumer tastes that is unfavorable to X.D. an increase in the price of Y if X and Y are complementary goods.


46. Digital cameras and memory cards are: A. substitute goods.B. complementary goods.C. independent goods.D. inferior goods.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-1Topic: Determinants of demandType: Application of Concept

3-16


47. A decrease in the price of digital cameras will: A. cause the demand curve for memory cards to become vertical.B. shift the demand curve for memory cards to the right.C. shift the demand curve for memory cards to the left.D. not affect the demand for memory cards.


48. A normal good is one: A. whose amount demanded will increase as its price decreases.B. whose amount demanded will increase as its price increases.C. whose demand curve will shift leftward as incomes rise.D. the consumption of which varies directly with incomes.


49. If the demand for steak (a normal good) shifts to the left, the most likely reason is that: A. consumer incomes have fallen.B. cattle production has declined.C. the price of steak has risen.D. the price of cattle feed has gone up.


3-17


50. If consumer incomes increase, the demand for product X: A. will necessarily remain unchanged.B. may shift either to the right or left.C. will necessarily shift to the right.D. will necessarily shift to the left.


51. If products A and B are complements and the price of B decreases the: A. demand curves for both A and B will shift to the left.B. amount of B purchased will increase, but the demand curve for A will not shift.C. demand for A will increase and the amount of B demanded will increase.D. demand for A will decline and the demand for B will increase.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Determinants of demand

52. If products C and D are close substitutes, an increase in the price of C will: A. tend to cause the price of D to fall.B. shift the demand curve of C to the left and the demand curve of D to the right.C. shift the demand curve of D to the right.D. shift the demand curves of both products to the right.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Determinants of demandType: Application of Concept

3-18


53. In constructing a stable demand curve for product X: A. consumer preferences are allowed to vary.B. the prices of other goods are assumed constant.C. money incomes are allowed to vary.D. the supply curve of product X is assumed to be fixed.


54. The demand curve for a product might shift as the result of a change in: A. consumer tastes.B. consumer incomes.C. the prices of related goods.D. all of these.


55. An inferior good is: A. one whose demand curve will shift rightward as incomes rise.B. one whose price and quantity demanded vary directly.C. one which has not been approved by the Federal Food and Drug Administration.D. not accurately defined by any of the above statements.


3-19


56. Suppose an excise tax is imposed on product X. We would expect this tax to: A. increase the demand for complementary good Y and decrease the demand for substitute product Z.B. decrease the demand for complementary good Y and increase the demand for substitute product Z.C. increase the demands for both complementary good Y and substitute product Z.D. decrease the demands for both complementary good Y and substitute product Z.


57. An increase in the price of product A will: A. reduce the demand for resources used in the production of A.B. increase the demand for complementary product C.C. increase the demand for substitute product B.D. reduce the demand for substitute product B.


58. Which of the following would mostly likely increase the demand for gasoline? A. the expectation by consumers that gasoline prices will be higher in the future.B. the expectation by consumers that gasoline prices will be lower in the future.C. a widespread shift in car ownership from SUVs to hybrid sedans.D. a decrease in the price of public transportation.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Status: NewTopic: Determinants of demand

3-20


59. Suppose that tacos and pizza are substitutes, and that soda and pizza are complements. We would expect an increase in the price of pizza to: A. reduce the demand for tacos and increase the demand for sodas.B. reduce the demand for soda and increase the demand for tacos.C. increase the demand for both soda and tacos.D. reduce the demand for both soda and tacos.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Status: NewTopic: Determinants of demand

60. Refer to the above diagram. A decrease in demand is depicted by a: A. move from point x to point y.B. shift from D1 to D2.C. shift from D2 to D1.D. move from point y to point x.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-1Topic: Change in demand versus change in quantity demanded

3-21


61. Refer to the above diagram. A decrease in quantity demanded is depicted by a: A. move from point x to point y.B. shift from D1 to D2.C. shift from D2 to D1.D. move from point y to point x.


62. When an economist says that the demand for a product has increased, this means that: A. consumers are now willing to purchase more of this product at each possible price.B. the product has become particularly scarce for some reason.C. product price has fallen and as a consequence consumers are buying a larger quantity of the product.D. the demand curve has shifted to the left.


63. "In the corn market, demand often exceeds supply and supply sometimes exceeds demand." "The price of corn rises and falls in response to changes in supply and demand." In which of these two statements are the terms demand and supply being used correctly? A. in neither statement.B. in the second statement.C. in the first statement.D. in both statements.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Topic: Change in demand versus change in quantity demanded

3-22


64. By an increase in demand we mean that : A. product price has fallen so consumers move down to a new point on the demand curve.B. the quantity demanded at each price in a set of prices is greater.C. the quantity demanded at each price in a set of prices is smaller.D. a leftward shift of the demand curve has occurred.


65. The quantity demanded of a product increases as its price declines because the: A. lower price shifts the demand curve rightward.B. lower price shifts the demand curve leftward.C. lower price results in an increase in supply.D. demand curve is downsloping.


66. The term quantity demanded: A. refers to the entire series of prices and quantities that comprise the demand schedule.B. refers to a situation in which the income and substitution effects do not apply.C. refers to the amount of a product that will be purchased at some specific price.D. means the same thing as demand.


3-23


67. If consumers are willing to pay a higher price than previously for each level of output, we can say that, the following has occurred: A. a decrease in demand.B. an increase in demand.C. a decrease in supply.D. an increase in supply.


68. A decrease in the demand for recreational fishing boats might be caused by an increase in the: A. income of sports fishers.B. price of outboard motors.C. size and number of fish available.D. price of sailing boats.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Change in demand versus change in quantity demanded

69. An increase in demand means that: A. given supply, the price of the product will decline.B. the demand curve has shifted to the right.C. price has declined and consumers therefore want to purchase more of the product.D. the demand curve has shifted to the left.


3-24


70. Assume that the demand schedule for product C is downsloping. If the price of C falls from $2.00 to $1.75: A. a smaller quantity of C will be demanded.B. a larger quantity of C will be demanded.C. the demand for C will increase.D. the demand for C will decrease.


71. An increase in the quantity demanded means that: A. given supply, the price of the product can be expected to decline.B. price has declined and consumers therefore want to purchase more of the product.C. the demand curve has shifted to the right.D. the demand curve has shifted to the left.


72. An increase in product price will cause: A. quantity demanded to decrease.B. quantity supplied to decrease.C. quantity demanded to increase.D. the supply curve to shift to the left.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Change in demand versus change in quantity demanded

3-25


73. In moving along a stable demand curve which of the following is not held constant? A. the price of the product for which the demand curve is relevant.B. price expectations.C. consumer incomes.D. the prices of complementary goods.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-1Topic: Change in demand versus change in quantity demanded

74. In which of the following statements are the terms "demand" and "quantity demanded" used correctly? A. When the price of ice cream rose, the demand for both ice cream and ice cream toppings fell.B. When the price of ice cream rose, the quantity demanded of ice cream fell, and the demand for ice cream toppings fell.C. When the price of ice cream rose, the demand for ice fell, and the quantity demanded of ice cream toppings fell.D. None of these statements use the terms correctly.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-1Status: NewTopic: Change in demand versus change in quantity demanded

3-26


75. Refer to the above diagram. A decrease in supply is depicted by a: A. move from point x to point y.B. shift from S1 to S2.C. shift from S2 to S1.D. move from point y to point x.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-2Topic: Supply and supply curve

76. Refer to the above diagram. An increase in quantity supplied is depicted by a: A. move from point y to point x.B. shift from S1 to S2.C. shift from S2 to S1.D. move from point x to point y.


77. The law of supply indicates that: A. producers will offer more of a product at high prices than they will at low prices.B. the product supply curve is downsloping.C. consumers will purchase less of a good at high prices than they will at low prices.D. producers will offer more of a product at low prices than they will at high prices.


3-27


78. The law of supply: A. reflects the amounts that producers will want to offer at each price in a series of prices.B. is reflected in a downsloping supply curve.C. shows that the relationship between producer revenue and quantity supplied is negative.D. reflects the income and substitution effects of a price change.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-2Topic: Supply and supply curve

79. The upward slope of the supply curve reflects the: A. principle of specialization in production.B. law of supply.C. fact that price and quantity supplied are inversely related.D. law of diminishing marginal utility.


3-28


80. (Advanced analysis) The equation for the supply curve in the below diagram is approximately:

A. P = 4 + 1/3Q.B. P = 4 + 2Q.C. P = 4 + 3Q.D. P = 4 - 3Q.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-2Topic: Supply and supply curve

81. The supply curve shows the relationship between: A. price and quantity supplied.B. production costs and the amount demanded.C. total business revenues and quantity supplied.D. physical inputs of resources and the resulting units of output.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-2Topic: Supply and supply curve

3-29


82. A firm's supply curve is upsloping because: A. the expansion of production necessitates the use of qualitatively inferior inputs.B. mass production economies are associated with larger levels of output.C. consumers envision a positive relationship between price and quality.D. beyond some point the production costs of additional units of output will rise.


83. Increasing marginal cost of production explains: A. the law of demand.B. the income effect.C. why the supply curve is upsloping.D. why the demand curve is downsloping.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-2Status: NewTopic: Supply and supply curve

84. A leftward shift of a product supply curve might be caused by: A. an improvement in the relevant technique of production.B. a decline in the prices of needed inputs.C. an increase in consumer incomes.D. some firms leaving an industry.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-2Topic: Determinants of supply

3-30


85. The location of the product supply curve depends on: A. production technology.B. the number of buyers in the market.C. the tastes of buyers.D. the location of the demand curve.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-2Topic: Determinants of supply

86. An improvement in production technology will: A. increase equilibrium price.B. shift the supply curve to the left.C. shift the supply curve to the right.D. shift the demand curve to the left.


87. Because of unseasonably cold weather, the supply of oranges has substantially decreased. This statement indicates that: A. the demand for oranges will necessarily rise.B. the equilibrium quantity of oranges will rise.C. the amount of oranges that will be available at various prices has declined.D. the price of oranges will fall.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-2Topic: Determinants of supply

3-31


88. If producers must obtain higher prices than previously to produce various levels of output, the following has occurred: A. a decrease in demand.B. an increase in demand.C. a decrease in supply.D. an increase in supply.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-2Topic: Determinants of supply

89. In moving along a stable supply curve which of the following is not held constant? A. the number of firms producing this goodB. expectations about the future price of the productC. techniques used in producing this productD. the price of the product for which the supply curve is relevant


90. The location of the supply curve of a product depends on: A. the technology used to produce it.B. the prices of resources used in its production.C. the number of sellers in the market.D. all of these.


3-32


91. Assume product A is an input in the production of product B. In turn product B is a complement to product C. We can expect a decrease in the price of A to: A. increase the supply of B and increase the demand for C.B. decrease the supply of B and increase the demand for C.C. decrease the supply of B and decrease the demand for C.D. increase the supply of B and decrease the demand for C.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-1Learning Objective: 3-2Topic: Determinants of supply

92. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to: A. rise, the supply of bread to increase, and the demand for potatoes to increase.B. rise, the supply of bread to decrease, and the demand for potatoes to increase.C. rise, the supply of bread to decrease, and the demand for potatoes to decrease.D. fall, the supply of bread to increase, and the demand for potatoes to increase.


93. Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. An increase in the price of X can be expected to: A. decrease the demand for Z.B. increase the demand for Z.C. have no effect on the demand for Z.D. decrease the supply of Z.


3-33


94. Other things equal, if the price of a key resource used to produce product X falls, the: A. product supply curve of X will shift to the right.B. product demand curve of X will shift to the right.C. product supply curve of X will shift to the left.D. product demand curve of X will shift to the left.


95. When the price of oil declines significantly, the price of gasoline also declines. The latter occurs because of a(n): A. increase in the demand for gasoline.B. decrease in the demand for gasoline.C. increase in the supply of gasoline.D. decrease in the supply of gasoline.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-2Topic: Determinants of supply

96. An increase in the excise tax on cigarettes raises the price of cigarettes by shifting the: A. demand curve for cigarettes rightward.B. demand curve for cigarettes leftward.C. supply curve for cigarettes rightward.D. supply curve for cigarettes leftward.


3-34


97. A government subsidy to the producers of a product: A. reduces product supply.B. increases product supply.C. reduces product demand.D. increases product demand.


98. Suppose that at prices of $5, $4, $3, $2, and $1 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices? A. improved technology for producing ZB. an increase in the prices of the resources used to make ZC. an increase in the excise tax on product ZD. increases in the incomes of the buyers of Z


99. Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect: A. the supply of ethanol, a corn-based product, to increase.B. consumer demand for wheat to fall.C. the supply to increase as farmers plant more corn.D. the supply to fall as farmers plant more of other crops.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-2Status: NewTopic: Determinants of supply

3-35


100. Refer to the above table. If demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5), equilibrium price and quantity will be: A. $10 and 60 units.B. $9 and 50 units.C. $8 and 60 units.D. $7 and 50 units.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-3Topic: Equilibrium; rationing function

101. Refer to the above table. If demand is represented by columns (3) and (1) and supply is represented by columns (3) and (4), equilibrium price and quantity will be: A. $10 and 60 units.B. $9 and 60 units.C. $8 and 80 units.D. $7 and 30 units.


3-36


102. Refer to the above table. In relation to column (3), a change from column (2) to column (1) would indicate a(n): A. increase in demand.B. decrease in demand.C. increase in supply.D. decrease in supply.


103. Refer to the above table. In relation to column (3), a change from column (5) to column (4) would indicate a(n): A. increase in demand.B. decrease in demand.C. increase in supply.D. decrease in supply.


104. Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, a: A. the market would clear.B. a surplus of 20 units would occur.C. a shortage of 20 units would occur.D. demand would change from columns (3) and (2) to columns (3) and (1).


3-37


105. Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $6, a: A. the market would clear.B. a surplus of 40 units would occur.C. a shortage of 40 units would occur.D. demand would change from columns (3) and (2) to columns (3) and (1).


106. Refer to the above table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by: A. reduced taste for the good.B. an increase in input prices.C. consumers expecting that prices will be lower in the future.D. government subsidizing production of the good.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-5Status: NewTopic: Equilibrium; rationing function

107. Refer to the above table. In relation to column (3), a change from column (4) to column (5) would most likely be caused by: A. government placing an excise tax on the good.B. an improvement in production technology.C. an increase in consumer income.D. an increase in input prices.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-5Status: NewTopic: Equilibrium; rationing function

3-38


Answer the next question(s) on the basis of the given supply and demand data for wheat:

108. Refer to the above data. Equilibrium price will be: A. $4.B. $3.C. $2.D. $1.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-3Topic: Equilibrium; rationing function

109. Refer to the above data. If the price in this market was $4: A. the market would clear; quantity demanded would equal quantity supplied.B. buyers would want to purchase more wheat than is currently being supplied.C. farmers would not be able to sell all their wheat.D. there would be a shortage of wheat.


3-39


110. Refer to the above data. If price was initially $4 and free to fluctuate, we would expect: A. quantity supplied to continue to exceed quantity demanded.B. the quantity of wheat supplied to decline as a result of the subsequent price change.C. the quantity of wheat demanded to fall as a result of the subsequent price change.D. the price of wheat to rise.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-3Topic: Equilibrium; rationing function

111. Refer to the above diagram. The equilibrium price and quantity in this market will be: A. $1.00 and 200.B. $1.60 and 130.C. $.50 and 130.D. $1.60 and 290.


3-40


112. Refer to the above diagram. A surplus of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50.B. $1.60.C. $1.00.D. $.50.


113. Refer to the above diagram. A shortage of 160 units would be encountered if price was: A. $1.10, that is, $1.60 minus $.50.B. $1.60.C. $1.00.D. $.50.


114. If a product is in surplus supply, its price: A. is below the equilibrium level.B. is above the equilibrium level.C. will rise in the near future.D. is in equilibrium.


3-41


115. A market is in equilibrium: A. provided there is no surplus of the product.B. at all prices above that shown by the intersection of the supply and demand curves.C. if the amount producers want to sell is equal to the amount consumers want to buy.D. whenever the demand curve is downsloping and the supply curve is upsloping.


116. If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will: A. increase the supply of X and decrease the demand for X.B. increase the demand for X and decrease the supply of X.C. increase the quantity supplied and decrease the quantity demanded of X.D. decrease the quantity supplied of X and increase the quantity demanded of X.


117. At the equilibrium price: A. quantity supplied may exceed quantity demanded or vice versa.B. there are no pressures on price to either rise or fall.C. there are forces that cause price to rise.D. there are forces that cause price to fall.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-3Topic: Equilibrium; rationing function

3-42


118. Refer to the above diagram. A price of $60 in this market will result in: A. equilibrium.B. a shortage of 50 units.C. a surplus of 50 units.D. a surplus of 100 units.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-3Topic: Equilibrium; rationing function

119. Refer to the above diagram. A price of $20 in this market will result in: A. a shortage of 50 units.B. a surplus of 50 units.C. a surplus of 100 units.D. a shortage of 100 units.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-3Topic: Equilibrium; rationing function

3-43


120. Refer to the above diagram. The highest price that buyers will be willing and able to pay for 100 units of this product is: A. $30.B. $60.C. $40.D. $20.


121. Refer to the above diagram. If this is a competitive market, price and quantity will move toward: A. $60 and 100 respectively.B. $60 and 200 respectively.C. $40 and 150 respectively.D. $20 and 150 respectively.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-3Topic: Equilibrium; rationing function

122. At the point where the demand and supply curves for a product intersect: A. the selling price and the buying price need not be equal.B. the market may, or may not, be in equilibrium.C. either a shortage or a surplus of the product might exist, depending on the degree of competition.D. the quantity that consumers want to purchase and the amount producers choose to sell are the same.


3-44


123. The rationing function of prices refers to the: A. tendency of supply and demand to shift in opposite directions.B. fact that ration coupons are needed to alleviate wartime shortages of goods.C. capacity of a competitive market to equate the quantity demanded and the quantity supplied.D. ability of the market system to generate an equitable distribution of income.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-3Topic: Equilibrium; rationing function

124. A competitive market will: A. achieve an equilibrium price.B. produce shortages.C. produce surpluses.D. create disorder.


125. If there is a shortage of product X: A. fewer resources will be allocated to the production of this good.B. the price of the product will rise.C. the price of the product will decline.D. the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.


3-45


126. At the point where the demand and supply curves intersect: A. the buying and selling decisions of consumers and producers are inconsistent with one another.B. the market is in disequilibrium.C. there is neither a surplus nor a shortage of the product.D. quantity demanded exceeds quantity supplied.


127. At the current price there is a shortage of a product. We would expect price to: A. increase, quantity demanded to increase, and quantity supplied to decrease.B. increase, quantity demanded to decrease, and quantity supplied to increase.C. increase, quantity demanded to increase, and quantity supplied to increase.D. decrease, quantity demanded to increase, and quantity supplied to decrease.


128. In a competitive market the equilibrium price and quantity occur where: A. the downsloping demand curve intersects the upsloping supply curve.B. the upsloping demand curve intersects the downsloping supply curve.C. consumers and suppliers bargain to a mutually acceptable price.D. quantity demanded exceeds quantity supplied or vice versa.


3-46


129. A surplus of a product will arise when price is: A. above equilibrium with the result that quantity demanded exceeds quantity supplied.B. above equilibrium with the result that quantity supplied exceeds quantity demanded.C. below equilibrium with the result that quantity demanded exceeds quantity supplied.D. below equilibrium with the result that quantity supplied exceeds quantity demanded.


130. If price is above the equilibrium level, competition among sellers to reduce the resulting: A. surplus will increase quantity demanded and decrease quantity supplied.B. shortage will decrease quantity demanded and increase quantity supplied.C. surplus will decrease quantity demanded and increase quantity supplied.D. shortage will increase quantity demanded and decrease quantity supplied.


131. If we say that a price is too high to clear the market, we mean that: A. quantity demanded exceeds quantity supplied.B. the equilibrium price is above the current price.C. quantity supplied exceeds quantity demanded.D. the price of the good is likely to rise.


3-47


132. Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will: A. decrease, quantity demanded will decrease, and quantity supplied will increase.B. decrease and quantity demanded and quantity supplied will both decrease.C. decrease, quantity demanded will increase, and quantity supplied will decrease.D. increase, quantity demanded will decrease, and quantity supplied will increase.


133. Assume in a competitive market that price is initially below the equilibrium level. We can predict that price will: A. decrease, quantity demanded will decrease, and quantity supplied will increase.B. decrease and quantity demanded and quantity supplied will both decrease.C. increase, quantity demanded will increase, and quantity supplied will decrease.D. increase, quantity demanded will decrease, and quantity supplied will increase.


134. A product market is in equilibrium: A. when there is no surplus of the product.B. when there is no shortage of the product.C. when consumers want to buy more of the product than producers offer for sale.D. where the demand and supply curves intersect.


3-48


135. There will be a surplus of a product when: A. price is below the equilibrium level.B. the supply curve is downward sloping and the demand curve is upward sloping.C. the demand and supply curves fail to intersect.D. consumers want to buy less than producers offer for sale.


136. Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), then we would expect both Camille's and Julia's to: A. raise their price and reduce their quantity supplied.B. raise their price and increase their quantity supplied.C. lower their price and reduce their quantity supplied.D. lower their price and increase their quantity supplied.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-3Status: NewTopic: Equilibrium; rationing function

137. Productive efficiency refers to: A. the use of the least-cost method of production.B. the production of the product-mix most wanted by society.C. the full employment of all available resources.D. production at some point inside of the production possibilities curve.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-3Topic: Efficient allocation

3-49


138. If an economy produces its most wanted goods but uses outdated production methods, it is: A. achieving productive efficiency, but not allocative efficiency.B. not achieving productive efficiency.C. achieving both productive and allocative efficiency.D. engaged in roundabout production.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-3Topic: Efficient allocation

139. Allocative efficiency is concerned with: A. producing the combination of goods most desired by society.B. achieving the full employment of all available resources.C. producing every good with the least-cost combination of inputs.D. reducing the concavity of the production possibilities curve.


140. Allocative efficiency involves determining: A. which output-mix will result in the most rapid rate of economic growth.B. which production possibilities curve reflects the lowest opportunity costs.C. the mix of output that will maximize society's satisfaction.D. the optimal rate of technological progress.


3-50


141. The equilibrium price and quantity in a market usually produces allocative efficiency because: A. all consumers who want the good are satisfied.B. marginal benefit and marginal cost are equal at that point.C. equilibrium insures an equitable distribution of output.D. the excess of goods produced at equilibrium guarantees that all will have enough.


142. Allocative efficiency refers to: A. the use of the least-cost method of production.B. the production of the product-mix most wanted by society.C. the full employment of all available resources.D. production at some point inside of the production possibilities curve.


143. The optimal or allocatively efficient point on a production possibilities curve is achieved where: A. the smallest physical amounts of inputs are used to produce each good.B. each good is produced at a level where marginal benefits equal marginal costs.C. large amounts of capital goods are produced relative to consumer goods.D. large amounts of consumer goods are produced relative to capital goods.


3-51


144. Which of the following statements is true about productive and allocative efficiency? A. Realizing allocative efficiency implies that productive efficiency has been realized.B. Productive efficiency can only occur if there is also allocative efficiency.C. Society can achieve either productive efficiency or allocative efficiency, but not both simultaneously.D. Productive efficiency and allocative efficiency can only occur together; neither can occur without the other.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-3Status: NewTopic: Efficient allocation

145. Other things equal, an excise tax on a product will: A. increase its supply.B. increase its price.C. increase the quantity sold.D. increase its demand.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-4Topic: Changes in equilibrium price and quantity

146. Assuming conventional supply and demand curves, changes in the determinants of supply and demand will: A. in all likelihood alter both equilibrium price and quantity.B. alter equilibrium quantity, but not equilibrium price.C. alter equilibrium price, but not equilibrium quantity.D. have no effect on equilibrium price or quantity.


3-52


147. Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity? A. an increase in supply.B. an increase in demand.C. a decrease in supply.D. a decrease in demand.


148. Suppose that in each of four successive years producers sell more of their product and at lower prices. This could be explained: A. by small annual increases in supply accompanied by large annual increases in demand.B. in terms of a stable supply curve and increasing demand.C. in terms of a stable demand curve and increasing supply.D. as an exception to the law of supply.


149. Other things equal, the provision of a per unit subsidy for a product will: A. increase its supply.B. increase its price.C. decrease the quantity sold.D. decrease its demand.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-2Topic: Changes in equilibrium price and quantity

3-53


150. Which of the following statements is correct? A. If demand increases and supply decreases, equilibrium price will fall.B. If supply increases and demand decreases, equilibrium price will fall.C. If demand decreases and supply increases, equilibrium price will rise.D. If supply declines and demand remains constant, equilibrium price will fall.


151. In which of the following instances will the effect on equilibrium price be dependent on the magnitude of the shifts in supply and demand? A. demand rises and supply rises.B. supply falls and demand remains constant.C. demand rises and supply falls.D. supply rises and demand falls.


3-54


152. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If the initial demand and supply curves are D0 and S0, equilibrium price and quantity will be: A. 0F and 0C respectively.B. 0G and 0B respectively.C. 0F and 0A respectively.D. 0E and 0B respectively.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-4Topic: Changes in equilibrium price and quantity

153. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Given D0, if the supply curve moved from S0 to S1, then: A. supply has increased and equilibrium quantity has decreased.B. supply has decreased and equilibrium quantity has decreased.C. there has been an increase in the quantity supplied.D. supply has increased and price has risen to 0G.


154. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. If supply is S1 and demand D0, then A. at any price above 0G a shortage would occur.B. 0F represents a price that would result in a surplus of AC.C. a surplus of GH would occur.D. 0F represents a price that would result in a shortage of AC.


3-55


155. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n): A. decrease in income if X is an inferior good.B. increase in the price of complementary good Y.C. increase in money incomes if X is a normal good.D. increase in the price of substitute product Y.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Topic: Changes in equilibrium price and quantity

156. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n): A. increase in the wage rates paid to laborers employed in the production of X.B. government subsidy per unit of output paid to firms producing X.C. decline in the price of the basic raw material used in producing X.D. increase in the number of firms producing X.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-2Topic: Changes in equilibrium price and quantity

157. If the supply and demand curves for a product both decrease, then equilibrium: A. quantity must fall and equilibrium price must rise.B. price must fall, but equilibrium quantity may rise, fall, or remain unchanged.C. quantity must decline, but equilibrium price may rise, fall, or remain unchanged.D. quantity and equilibrium price must both decline.


3-56


158. If the supply of a product decreases and the demand for that product simultaneously increases, then equilibrium: A. price must rise, but equilibrium quantity may rise, fall, or remain unchanged.B. price must rise and equilibrium quantity must fall.C. price and equilibrium quantity must both increase.D. price and equilibrium quantity must both decline.


159. Assuming competitive markets with typical supply and demand curves, which of the following statements is correct? A. An increase in supply with a decrease in demand will result in an increase in price.B. An increase in supply with no change in demand will result in an increase in price.C. An increase in supply with no change in demand will result in a decline in sales.D. An increase in demand with no change in supply will result in an increase in sales.


3-57


160. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. supply has decreased and equilibrium price has increased.B. demand has increased and equilibrium price has decreased.C. demand has decreased and equilibrium price has decreased.D. demand has increased and equilibrium price has increased.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-4Topic: Changes in equilibrium price and quantity

161. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market: A. the equilibrium position has shifted from M to K.B. an increase in demand has been more than offset by an increase in supply.C. the new equilibrium price and quantity are both greater than originally.D. point M shows the new equilibrium position.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-4Topic: Changes in equilibrium price and quantity

162. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by: A. an increase in the wages paid to workers producing this good.B. the development of more efficient machinery for producing this commodity.C. this product becoming less fashionable.D. an increase in consumer incomes.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-2Learning Objective: 3-4Topic: Changes in equilibrium price and quantityType: Complex Analysis

3-58


163. Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in demand may have been caused by: A. a decline in the number of buyers in the market.B. a decline in the price of a substitute good.C. an increase in incomes if the product is a normal good.D. an increase in incomes if the product is an inferior good.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-1Learning Objective: 3-4Topic: Changes in equilibrium price and quantity

164. An unusually large crop of coffee beans might: A. increase the supply of coffee.B. increase the price of coffee.C. decrease the quantity of coffee consumed.D. increase the price of tea.


In the following question(s) you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X, (2) the equilibrium price (P) of X and (3) the equilibrium quantity (Q) of X.

165. Refer to the above. An increase in income, if X is a normal good, will: A. increase D, increase P, and increase Q.B. increase D, increase P, and decrease Q.C. increase S, increase P, and increase Q.D. decrease D, increase P, and increase Q.


3-59


166. Refer to the above. An increase in the price of a product that is a close substitute for X will: A. decrease D, increase P, and decrease Q.B. increase D, increase P, and decrease Q.C. increase D, increase P, and increase Q.D. increase D, decrease P, and increase Q.


167. Refer to the above. A decrease in the number of consumers of product X will: A. decrease S, decrease P, and decrease Q.B. increase D, increase P, and increase Q.C. decrease D, decrease P, and decrease Q.D. decrease D, decrease P, and increase Q.


168. Refer to the above. An increase in the tastes and preferences for X will: A. increase S, decrease P, and increase Q.B. decrease S, decrease P, and decrease Q.C. increase D, increase P, and increase Q.D. decrease D, decrease P, and decrease Q.


3-60


169. Refer to the above. An increase in the prices of resources used to produce X will: A. increase S, increase P, and increase Q.B. increase D, increase P, and increase Q.C. decrease S, decrease P, and decrease Q.D. decrease S, increase P, and decrease Q.


170. Refer to the above. An improvement in the technology used to produce X will: A. decrease S, increase P, and decrease Q.B. decrease S, increase P, and increase Q.C. increase S, decrease P, and increase Q.D. decrease D, decrease P, and decrease Q.


171. Refer to the above. A reduction in the number of firms producing X will: A. increase D, increase P, and increase Q.B. increase S, decrease P, and increase Q.C. decrease S, increase P, and decrease Q.D. decrease S, decrease P, and increase Q.


3-61


172. Refer to the above. An increase in the price of a product that is a complement to X will: A. decrease S, decrease P, and decrease Q.B. decrease D, decrease P, and decrease Q.C. increase D, increase P, and increase Q.D. increase D, increase P, and decrease Q.


173. Refer to the above. If X is an inferior good, a decrease in income will: A. decrease D, decrease P, and decrease Q.B. decrease D, decrease P, and increase Q.C. increase S, decrease P, and increase Q.D. increase D, increase P, and increase Q.


174. Refer to the above. Consumer expectations that the price of X will rise sharply in the future will: A. increase S, increase P, and increase Q.B. increase D, increase P, and increase Q.C. decrease S, increase P, and increase Q.D. increase D, decrease P, and increase Q.


3-62


175. Data from the registrar's office at Gigantic State University indicate that over the past twenty years tuition and enrollment have both increased. From this information we can conclude that: A. higher education is an exception to the law of demand.B. the supply of education provided by GSU has also increased over the twenty-year period.C. school-age population, incomes, and preferences for education have changed over the twenty-year period.D. GSU's supply curve of education is downsloping.


176. One can say with certainty that equilibrium price will decline when supply: A. and demand both decrease.B. increases and demand decreases.C. decreases and demand increases.D. and demand both increase.


177. Suppose that in 2007 Ford sold 500,000 Mustangs at an average price of $18,800 per car; in 2008, 600,000 Mustangs were sold at an average price of $19,500 per car. These statements: A. suggest that the demand for Mustangs decreased between 2007 and 2008.B. suggest that the supply of Mustangs must have increased between 2007 and 2008.C. suggest that the demand for Mustangs increased between 2007 and 2008.D. constitute an exception to the law of demand in that they suggest an upsloping demand curve.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-1Learning Objective: 3-3Topic: Changes in equilibrium price and quantity

3-63


178. Since their introduction, prices of DVD players have fallen and the quantity purchased has increased. This statement: A. suggests that the supply of DVD players has increased.B. suggests that the demand for DVD players has increased.C. constitutes an exception to the law of demand in that they suggest an upward sloping demand curve.D. constitutes an exception to the law of supply in that they suggest a downward sloping supply curve.


179. One can say with certainty that equilibrium quantity will increase when supply: A. and demand both decrease.B. increases and demand decreases.C. decreases and demand increases.D. and demand both increase.


3-64


180. Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles? A. A only.B. B only.C. C only.D. D only.


181. Which of the above diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? A. A only.B. A and D.C. B only.D. D only.


182. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer? A. A and C.B. A only.C. B only.D. C only.


3-65


183. Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing? A. A and C.B. A only.C. B only.D. C only.


184. Which of the above diagrams illustrate(s) the effect of a governmental subsidy on the market for AIDS research? A. A only.B. B only.C. C only.D. D only.


185. Which of the above diagrams illustrate(s) the effect of a decline in the price of irrigation equipment on the market for corn? A. B only.B. C only.C. B and C.D. D only.


3-66


186. With a downsloping demand curve and an upsloping supply curve for a product, an increase in consumer income will: A. increase equilibrium price and quantity if the product is a normal good.B. decrease equilibrium price and quantity if the product is a normal good.C. have no effect on equilibrium price and quantity.D. reduce the quantity demanded, but not shift the demand curve.


187. With a downsloping demand curve and an upsloping supply curve for a product, a decrease in resource prices will: A. increase equilibrium price and quantity.B. decrease equilibrium price and quantity.C. decrease equilibrium price and increase equilibrium quantity.D. increase equilibrium price and decrease equilibrium quantity.


188. With a downsloping demand curve and an upsloping supply curve for a product, placing an excise tax on this product will: A. increase equilibrium price and quantity.B. decrease equilibrium price and quantity.C. decrease equilibrium price and increase equilibrium quantity.D. increase equilibrium price and decrease equilibrium quantity.


3-67


189. Given a downsloping demand curve and an upsloping supply curve for a product, an increase in the price of a substitute good will: A. increase equilibrium price and quantity.B. decrease equilibrium price and quantity.C. increase equilibrium price and decrease equilibrium quantity.D. decrease equilibrium price and increase equilibrium quantity.


(Advanced analysis) Answer the next question(s) on the basis of the following information. The demand for commodity X is represented by the equation P = 10 - 0.2Q and supply by the equation P = 2 + 0.2Q.

190. Refer to the above information. The equilibrium quantity is: A. 10.B. 20.C. 15.D. 30.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-3Topic: Changes in equilibrium price and quantity

191. Refer to the above information. The equilibrium price for X is: A. $2.B. $4.C. $6.D. $7.


3-68


192. Refer to the above information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, we can conclude that: A. demand has increased.B. demand has decreased.C. supply will increase.D. supply will decrease.


193. Refer to the above information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium quantity is: A. 10.B. 20.C. 15.D. 30.


194. Refer to the above information. If demand changed from P = 10 - .2Q to P = 7 - .3Q, the new equilibrium price is: A. $2.B. $4.C. $6.D. $7.


3-69


195. Over time, the equilibrium price of a gigabyte of computer memory has fallen while the equilibrium quantity purchased has increased. Based on this we can conclude that: A. Decreases in the demand for computer memory have exceeded increases in supply.B. Decreases in the supply of computer memory have exceeded increases in demand.C. Increases in the demand for computer memory have exceeded increases in supply.D. Increases in the supply of computer memory have exceeded increases in demand.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-4Status: NewTopic: Changes in equilibrium price and quantity

196. Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information we can conclude that: A. The supply of clothing has grown faster than the demand for clothing.B. Demand for clothing has grown faster than the supply of clothing.C. The supply of and demand for clothing have grown by the same proportion.D. There is no way to determine what has happened to supply and demand with this information.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-4Status: NewTopic: Changes in equilibrium price and quantity

(Advanced analysis) Answer the next question(s) on the basis of the following information. The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q.

3-70


197. Refer to the above information. The equilibrium quantity is: A. 10.B. 20.C. 15.D. 30.

AACSB: Analytical SkillsBloom's: ApplicationLearning Objective: 3-3Status: NewTopic: Changes in equilibrium price and quantity

198. Refer to the above information. The equilibrium price is: A. $50B. $70C. $80D. $130


199. Refer to the above information. If demand changed from P = 100 – 2Q to P = 130 – Q, we can conclude that: A. demand has increased.B. demand has decreased.C. supply has increased.D. supply has decreased.


3-71


200. Refer to the above information. If demand changed from P = 100 – 2Q to P = 130 – Q, the new equilibrium quantity is: A. 15B. 20C. 24D. 32


201. Refer to the above information. If demand changed from P = 100 – 2Q to P = 130 – Q, the new equilibrium price is: A. $90B. $110C. $96D. $106


Government-set prices

3-72


202. In the above market, economists would call a government-set minimum price of $50 a: A. price ceiling.B. price floor.C. equilibrium price.D. fair price.

AACSB: Analytical SkillsBloom's: KnowledgeLearning Objective: 3-5Topic: Government-set prices

203. In the above market, economists would call a government-set maximum price of $40 a: A. price ceiling.B. price floor.C. equilibrium price.D. fair price.


204. If government set a minimum price of $50 in the above market, a: A. shortage of 21 units would occur.B. shortage of 125 units would occur.C. surplus of 21 units would occur.D. surplus of 125 units would occur.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-5Topic: Government-set prices

3-73


205. If government set a maximum price of $45 in the above market: A. a shortage of 21 units would arise.B. a surplus of 21 units would arise.C. a surplus of 40 units would arise.D. it would create neither a shortage nor a surplus.

AACSB: Analytical SkillsBloom's: AnalysisLearning Objective: 3-5Topic: Government-set prices

206. Refer to the above diagram. A government-set price floor is best illustrated by: A. price A.B. quantity E.C. price C.D. price B.

AACSB: Analytical SkillsBloom's: UnderstandingLearning Objective: 3-5Topic: Government-set prices

3-74


207. Refer to the above diagram. A government-set price ceiling is best illustrated by: A. price A.B. quantity E.C. price C.D. price B.


208. Refer to the above diagram. Rent controls are best illustrated by: A. price A.B. quantity E.C. price C.D. price B.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-5Topic: Government-set prices

209. Refer to the above diagram. A government price support program to aid farmers is best illustrated by: A. quantity E.B. price C.C. price A.D. price B.


3-75


210. Refer to the above diagram. A government-set maximum permissible interest rate is best illustrated by: A. price B.B. quantity E.C. price C.D. price A.


211. Price floors and ceiling prices: A. both cause shortages.B. both cause surpluses.C. cause the supply and demand curves to shift until equilibrium is established.D. interfere with the rationing function of prices.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-5Topic: Government-set prices

212. A price floor means that: A. inflation is severe in this particular market.B. sellers are artificially restricting supply to raise price.C. government is imposing a maximum legal price that is typically below the equilibrium price.D. government is imposing a minimum legal price that is typically above the equilibrium price.


3-76


213. An effective ceiling price will: A. induce new firms to enter the industry.B. result in a product surplus.C. result in a product shortage.D. clear the market.


214. An effective price floor will: A. force some firms in this industry to go out of business.B. result in a product surplus.C. result in a product shortage.D. clear the market.


215. Black markets are associated with: A. price floors and the resulting product surpluses.B. price floors and the resulting product shortages.C. ceiling prices and the resulting product shortages.D. ceiling prices and the resulting product surpluses.


3-77


216. Price ceilings and price floors: A. cause surpluses and shortages respectively.B. make the rationing function of free markets more efficient.C. interfere with the rationing function of prices.D. shift demand and supply curves and therefore have no effect on the rationing function of prices.


217. A price ceiling means that: A. there is currently a surplus of the relevant product.B. government is imposing a legal price that is typically below the equilibrium price.C. government wants to stop a deflationary spiral.D. government is imposing a legal price that is typically above the equilibrium price.


218. If an effective ceiling price is placed on hamburgers then: A. the quantity demanded will exceed the quantity supplied.B. a black market for hamburger may evolve.C. consumers may want government to ration hamburger.D. All of these are likely outcomes.

AACSB: Reflective Thinking SkillsBloom's: AnalysisLearning Objective: 3-5Topic: Government-set prices

3-78


219. If a legal ceiling price is set above the equilibrium price: A. a shortage of the product will occur.B. a surplus of the product will occur.C. a black market will evolve.D. neither the equilibrium price nor equilibrium quantity will be affected.


220. An effective price floor on wheat will: A. force otherwise profitable farmers out of business.B. result in a shortage of wheat.C. result in a surplus of wheat.D. clear the market for wheat.


221. Which of the following is a consequence of rent controls established to keep housing affordable for the poor? A. Less rental housing is available as prospective landlords find it unprofitable to rent at restricted prices.B. The quality of rental housing declines as landlords lack the funds and incentive to maintain properties.C. Apartment buildings are torn down in favor of office buildings, shopping malls, and other buildings where rents are not controlled.D. All of the above are consequences of rent controls.

AACSB: Reflective Thinking SkillsBloom's: ApplicationLearning Objective: 3-5Status: NewTopic: Government-set prices

3-79


222. Which of the following statements is true about price ceilings? A. Price ceilings cause goods to be rationed.B. Price ceilings cause goods to be rationed by some other means than legally determined market prices.C. Ration coupons are the only way to ration goods when price ceilings are in place.D. All of the above statements are correct.

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-5Status: NewTopic: Government-set prices

223. (Consider This) Ticket scalping refers to: A. the surplus of tickets that occurs when price is set below equilibrium.B. the shortage of tickets that occurs when price is set above equilibrium.C. pricing tickets so high that an athletic or artistic event will not be sold out.D. reselling a ticket at a price above its original purchase price.


224. (Consider This) Ticket scalping: A. imposes economic losses on both buyers and sellers.B. creates economic gains for both buyers and sellers.C. imposes losses on buyers, but creates gains for sellers.D. imposes losses on sellers, but creates gains for buyers.


3-80


225. (Consider This) Ticket scalping implies that: A. event sponsors have established ticket prices at above-equilibrium levels.B. an event is not likely to be sold out.C. event sponsors have established ticket prices at below-equilibrium levels.D. the demand for tickets has fallen between the time tickets were originally sold and the event takes place.


226. (Consider This) Ticket scalping is likely to: A. produce a less interested audience.B. reduce the well-being of ticket sellers.C. reduce the well-being of ticket buyers.D. produce a more interested audience.


227. (Consider This) Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year, and 3 million bottles at $3 in the next year. Based on this information we can conclude that the: A. law of supply has been violated.B. law of demand has been violated.C. demand for salsa has increased.D. supply of salsa has increased.


3-81


228. (Consider This) Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2007, and sell 240 million pounds for $3 per pound in 2008. Based on this information we can conclude that the: A. law of supply has been violated.B. law of demand has been violated.C. demand for coffee beans has increased.D. supply of coffee beans has increased.


229. (Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to: A. reduce the price of organs.B. create a surplus of organs.C. reduce the supply of organs.D. eliminate the shortage of organs.


230. (Last Word) A market-based system of buying and selling human organs for transplant would: A. reduce total health care spending.B. create a surplus of organs.C. increase the quantity of organs available for transplant.D. reduce the price of organs.


3-82


231. (Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to: A. reduce the quantity of organs supplied.B. increase total health care spending.C. decrease the demand for physicians who do transplants.D. create a surplus of organs.


232. (Last Word) A major objection to creating a legal market for human organs is that such a market would: A. create a substantial surplus of unused organs.B. increase the present shortage of organs.C. commercialize human body parts and thus diminish the special nature of human life.D. encourage healthier lifestyles to maintain saleable organs.


True / False Questions

233. Surpluses drive market prices up; shortages drive them down. FALSE


3-83


234. If demand increases and supply simultaneously decreases, equilibrium price will rise. TRUE


235. The rationing function of prices refers to the fact that government must distribute any surplus goods that may be left in a competitive market. FALSE


236. An increase in quantity supplied might be caused by an increase in production costs. FALSE


237. Supply refers to the amount of a product that a producer will offer in the market at some particular price. FALSE


3-84


238. An increase in demand accompanied by an increase in supply will increase the equilibrium quantity but the effect on equilibrium price will be indeterminate. TRUE


239. A government subsidy per unit of output increases supply. TRUE


240. Consumers buy more of normal goods as their incomes rise. TRUE


241. Toothpaste and toothbrushes are substitute goods. FALSE


242. Producing a good in the least costly way is known as allocative efficiency. FALSE


3-85


243. A market that achieves productive efficiency is producing the quantity of goods most desired by society. FALSE


244. A market that is achieving allocative efficiency must also be achieving productive efficiency. TRUE

AACSB: Reflective Thinking SkillsBloom's: UnderstandingLearning Objective: 3-3Topic: Efficient allocation

245. A government tax per unit of output reduces supply. TRUE


246. If market demand increases and market supply decreases, the change in equilibrium price is unpredictable without first knowing the exact magnitudes of the demand and supply changes. FALSE


3-86


247. A decrease in supply of X increases the equilibrium price of X, which reduces the demand for X and automatically returns the price of X to its initial level. FALSE


248. In a competitive market, every consumer willing to pay the market price can buy a product and every producer willing to sell the product at that price can sell it. TRUE


249. A price floor in a competitive market will result in persistent shortages of a product. FALSE


250. A ceiling price in a competitive market will result in persistent surpluses of a product. FALSE


3-87

econ chap 3

Documents

analytical

nike soccer

understanding

knowledge

analysis learning

application

ice cream

effective