Question 1

If price falls, what happens to the demand for a product?

Accepted Answer

A) It increases. 
B) It decreases. 
C) It does not change. 
D) Uncertain--economic theory has no answer to this question. 
A) It increases. 
B) It decreases. 
C) It does not change. 
D) Uncertain--economic theory has no answer to this question.

Question 2

When property rights are well defined and markets are competitive,

Accepted Answer

A) the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium. 
B) the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced. 
C) the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance. 
D) all of the above are true. 
A) the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium. 
B) the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced. 
C) the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance. 
D) all of the above are true.

Question 3

Figure 3-5  
-In Figure 3-5, if the initial demand for margarine were D1, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine?

Accepted Answer

A) a shift in the demand curve from D1 to D2 
B) a shift in the demand curve from D2 to D1 
C) a movement along demand curve D1 from a to b 
D) a movement along demand curve D1 from b to a 
A) a shift in the demand curve from D1 to D2 
B) a shift in the demand curve from D2 to D1 
C) a movement along demand curve D1 from a to b 
D) a movement along demand curve D1 from b to a

Question 4

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

Accepted Answer

A) higher than the equilibrium price. 
B) equal to the equilibrium price since the number of tickets bought equals the number sold. 
C) lower than the equilibrium price. 
D) higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic. 
A) higher than the equilibrium price. 
B) equal to the equilibrium price since the number of tickets bought equals the number sold. 
C) lower than the equilibrium price. 
D) higher than the equilibrium price when the demand is inelastic but lower when the demand is elastic.

Question 5

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?

Accepted Answer

A) the elasticity of the market demand curve 
B) the power of government when decisions are made democratically 
C) the guidelines and regulations set for his industry by the government 
D) the incentive structure accompanying market prices 
A) the elasticity of the market demand curve 
B) the power of government when decisions are made democratically 
C) the guidelines and regulations set for his industry by the government 
D) the incentive structure accompanying market prices

Question 6

Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would happen if the price of eggs were not permitted to rise by law?

Accepted Answer

The price of eggs rises around Easter du

Question 7

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

Accepted Answer

A) in both statements I and II 
B) in statement I only 
C) in statement II only 
D) in neither statements I nor II 
A) in both statements I and II 
B) in statement I only 
C) in statement II only 
D) in neither statements I nor II

Question 8

Producers are willing to offer greater quantities for sale at higher prices because

Accepted Answer

A) they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses 
B) they will decrease their profits by expanding production at higher prices 
C) the government orders them to do so 
D) lower prices attract new firms, which have higher costs of production 
E) they hire superior quality, higher-priced resources as production expands 
A) they have the incentive to pay the increasing opportunity cost of resources necessary to attract them from alternative uses 
B) they will decrease their profits by expanding production at higher prices 
C) the government orders them to do so 
D) lower prices attract new firms, which have higher costs of production 
E) they hire superior quality, higher-priced resources as production expands

Question 9

Profit can be defined as the

Accepted Answer

A) difference between the sales revenue of a business firm and the opportunity cost of the resources required to produce the goods supplied by the firm. 
B) difference between a company's income and direct monetary costs of production. 
C) difference between the price of a product and the consumer's valuation of the good. 
D) amount of total revenue earned by the firm minus its payments to stockholders. 
A) difference between the sales revenue of a business firm and the opportunity cost of the resources required to produce the goods supplied by the firm. 
B) difference between a company's income and direct monetary costs of production. 
C) difference between the price of a product and the consumer's valuation of the good. 
D) amount of total revenue earned by the firm minus its payments to stockholders.

Question 10

Figure 3-18  
-Refer to Figure 3-18. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

Accepted Answer

A) ABD 
B) ACF 
C) BCED 
D) DEF 
A) ABD 
B) ACF 
C) BCED 
D) DEF

Question 11

Assume that supply decreases slightly and demand decreases greatly. Which of the following will happen?

Accepted Answer

A) Equilibrium price will fall and equilibrium quantity will rise. 
B) Equilibrium price will rise and equilibrium quantity will fall. 
C) Equilibrium price will rise and equilibrium quantity will rise. 
D) Equilibrium price will fall and equilibrium quantity will fall. 
E) Neither equilibrium price nor equilibrium quantity will change. 
A) Equilibrium price will fall and equilibrium quantity will rise. 
B) Equilibrium price will rise and equilibrium quantity will fall. 
C) Equilibrium price will rise and equilibrium quantity will rise. 
D) Equilibrium price will fall and equilibrium quantity will fall. 
E) Neither equilibrium price nor equilibrium quantity will change.

Question 12

Figure 3-15  
-Refer to Figure 3-15. Which area represents producer surplus when the price is P1?

Accepted Answer

A) BCE 
B) ACF 
C) ABED 
D) DEF 
A) BCE 
B) ACF 
C) ABED 
D) DEF

Question 13

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

Accepted Answer

A) expenditures the firm undertakes for research and development. 
B) the opportunity cost of assets and financial resources owned by the firm. 
C) the direct monetary cost of purchasing resources. 
D) the firm's revenue as a cost. 
A) expenditures the firm undertakes for research and development. 
B) the opportunity cost of assets and financial resources owned by the firm. 
C) the direct monetary cost of purchasing resources. 
D) the firm's revenue as a cost.

Question 14

According to Adam Smith, what is the primary source of a nation's wealth?

Accepted Answer

A) The amount of gold and silver in the government's possession. 
B) A spirit of cooperation in which people share according to their means. 
C) Strong central planning authorities. 
D) The people's ability to produce products and trade in free markets. 
A) The amount of gold and silver in the government's possession. 
B) A spirit of cooperation in which people share according to their means. 
C) Strong central planning authorities. 
D) The people's ability to produce products and trade in free markets.

Question 15

Use the figure below to answer the following question(s).
Figure 3-9  
-Given the demand (D) and supply (S) for gasoline in Figure 3-9, if the price of gasoline were $1 per gallon,

Accepted Answer

A) consumers would wish to purchase more than was being supplied. 
B) producers would be supplying more than consumers wished to purchase. 
C) the quantity consumers wished to purchase would equal the quantity that producers wished to supply. 
D) there would be a tendency for the price of gasoline to fall. 
A) consumers would wish to purchase more than was being supplied. 
B) producers would be supplying more than consumers wished to purchase. 
C) the quantity consumers wished to purchase would equal the quantity that producers wished to supply. 
D) there would be a tendency for the price of gasoline to fall.

Question 16

The height of the supply curve at a quantity of 100 represents the

Accepted Answer

A) total value of all 100 units to consumers. 
B) minimum price required to induce a producer to supply the hundredth unit. 
C) equilibrium price of the good regardless of the position of the demand curve. 
D) profit derived by producers from the sale of the hundredth unit. 
A) total value of all 100 units to consumers. 
B) minimum price required to induce a producer to supply the hundredth unit. 
C) equilibrium price of the good regardless of the position of the demand curve. 
D) profit derived by producers from the sale of the hundredth unit.

Question 17

The price of a good will tend to fall when

Accepted Answer

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. 
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.

Question 18

An increase in the expected future price of a good will cause the current demand for the good to

Accepted Answer

A) decrease, which is a shift to the left of the demand curve. 
B) decrease, which is a shift to the right of the demand curve. 
C) increase, which is a shift to the left of the demand curve. 
D) increase, which is a shift to the right of the demand curve. 
A) decrease, which is a shift to the left of the demand curve. 
B) decrease, which is a shift to the right of the demand curve. 
C) increase, which is a shift to the left of the demand curve. 
D) increase, which is a shift to the right of the demand curve.

Question 19

Market prices are

Accepted Answer

A) conveyors of information. 
B) determined by the interactions of supply and demand in voluntary exchange. 
C) indicators of the relative scarcity of resources and products. 
D) all of the above. 
A) conveyors of information. 
B) determined by the interactions of supply and demand in voluntary exchange. 
C) indicators of the relative scarcity of resources and products. 
D) all of the above.

Question 20

Ceteris paribus, an increase in the price of a good will cause the

Accepted Answer

A) quantity demanded of the good to increase. 
B) quantity supplied of the good to decrease. 
C) producer surplus derived from the good to increase. 
D) supply of the good to decrease. 
A) quantity demanded of the good to increase. 
B) quantity supplied of the good to decrease. 
C) producer surplus derived from the good to increase. 
D) supply of the good to decrease.

If price falls, what happens to the demand for a product?

When property rights are well defined and markets are competitive,

Figure 3-5 -In Figure 3-5, if the initial demand for margarine were D₁, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine?

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?

Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would happen if the price of eggs were not permitted to rise by law?

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

Producers are willing to offer greater quantities for sale at higher prices because

Profit can be defined as the

Figure 3-18 -Refer to Figure 3-18. When the price falls from P₁ to P₂, which area represents the increase in consumer surplus to existing buyers?

Assume that supply decreases slightly and demand decreases greatly. Which of the following will happen?

Figure 3-15 -Refer to Figure 3-15. Which area represents producer surplus when the price is P₁?

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

According to Adam Smith, what is the primary source of a nation's wealth?

Use the figure below to answer the following question(s). Figure 3-9 -Given the demand (D) and supply (S) for gasoline in Figure 3-9, if the price of gasoline were $1 per gallon,

The height of the supply curve at a quantity of 100 represents the

The price of a good will tend to fall when

An increase in the expected future price of a good will cause the current demand for the good to

Market prices are

Ceteris paribus, an increase in the price of a good will cause the

The Economic Approach

Some Tools of the Economist

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Exam 3: Demand, Supply, and the Market Process

If price falls, what happens to the demand for a product?

When property rights are well defined and markets are competitive,

Figure 3-5 -In Figure 3-5, if the initial demand for margarine were D1, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine?

The number of people willing to buy tickets to the Super Bowl is invariably greater than the number of tickets (and seats) available. This is evidence that the price of the tickets is

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?

Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would happen if the price of eggs were not permitted to rise by law?

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

Producers are willing to offer greater quantities for sale at higher prices because

Profit can be defined as the

Figure 3-18 -Refer to Figure 3-18. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

Assume that supply decreases slightly and demand decreases greatly. Which of the following will happen?

Figure 3-15 -Refer to Figure 3-15. Which area represents producer surplus when the price is P1?

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

According to Adam Smith, what is the primary source of a nation's wealth?

Use the figure below to answer the following question(s). Figure 3-9 -Given the demand (D) and supply (S) for gasoline in Figure 3-9, if the price of gasoline were $1 per gallon,

The height of the supply curve at a quantity of 100 represents the

The price of a good will tend to fall when

An increase in the expected future price of a good will cause the current demand for the good to

Market prices are

Ceteris paribus, an increase in the price of a good will cause the

The Economic Approach

Some Tools of the Economist

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad-As Model

Fiscal Policy: the Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy, Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Filters

Figure 3-5 -In Figure 3-5, if the initial demand for margarine were D₁, an increase in the price of butter, which is a substitute for margarine, would tend to cause which of the following changes in the market for margarine?

Figure 3-18 -Refer to Figure 3-18. When the price falls from P₁ to P₂, which area represents the increase in consumer surplus to existing buyers?

Figure 3-15 -Refer to Figure 3-15. Which area represents producer surplus when the price is P₁?