Question 1

Prices direct economic activity in a market economy by

Accepted Answer

A) influencing the actions of buyers and sellers. 
B) reducing scarcity of the goods and services produced. 
C) eliminating the need for government intervention. 
D) allocating goods and services in the most equitable way. 
A) influencing the actions of buyers and sellers. 
B) reducing scarcity of the goods and services produced. 
C) eliminating the need for government intervention. 
D) allocating goods and services in the most equitable way.

Question 2

Two goods are considered substitutes if

Accepted Answer

A) a decrease in the demand for one leads to a decrease in the supply of the other. 
B) an increase in the demand for one leads to a decrease in the supply of the other. 
C) an increase in the price of one leads to an increase in the demand for the other. 
D) a decrease in the price of one leads to an increase in the demand for the other. 
E) a decrease in the supply of one leads producers to switch to production of the other. 
A) a decrease in the demand for one leads to a decrease in the supply of the other. 
B) an increase in the demand for one leads to a decrease in the supply of the other. 
C) an increase in the price of one leads to an increase in the demand for the other. 
D) a decrease in the price of one leads to an increase in the demand for the other. 
E) a decrease in the supply of one leads producers to switch to production of the other.

Question 3

Under competitive conditions, market prices

Accepted Answer

A) generally convey little information about the value and cost of goods. 
B) do not usually have much of an effect on the decisions of individuals. 
C) are incapable of coordinating the actions of buyers and sellers. 
D) generally bring the self-interest of individuals into harmony with the general welfare. 
A) generally convey little information about the value and cost of goods. 
B) do not usually have much of an effect on the decisions of individuals. 
C) are incapable of coordinating the actions of buyers and sellers. 
D) generally bring the self-interest of individuals into harmony with the general welfare.

Question 4

Which of the following occurs when a shortage occurs in the market for a good?

Accepted Answer

A) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. 
B) Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. 
C) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. 
D) Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption. 
A) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption. 
B) Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption. 
C) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption. 
D) Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

Question 5

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

Accepted Answer

A) Price would increase, and quantity would decrease. 
B) Price would decrease, and quantity would decrease. 
C) Price would increase, and quantity would increase. 
D) Price would decrease, and quantity would increase. 
A) Price would increase, and quantity would decrease. 
B) Price would decrease, and quantity would decrease. 
C) Price would increase, and quantity would increase. 
D) Price would decrease, and quantity would increase.

Question 6

The law of demand refers to the

Accepted Answer

A) inverse relationship between the price of a good and the willingness of consumers to buy it. 
B) price increase that results from an increase in demand for a good of limited supply. 
C) inverse relationship between the price of a good and the quantity offered for sale. 
D) increase in the quantity of a good available when its price increases. 
A) inverse relationship between the price of a good and the willingness of consumers to buy it. 
B) price increase that results from an increase in demand for a good of limited supply. 
C) inverse relationship between the price of a good and the quantity offered for sale. 
D) increase in the quantity of a good available when its price increases.

Question 7

Which of the following would most likely cause the supply of wheat to increase?

Accepted Answer

A) a decrease in the price of corn, a substitute for wheat 
B) a technological advance that lowers the cost of producing wheat 
C) an increase in the cost of producing wheat 
D) a change in consumer preferences, causing them to prefer plain white bread to whole-wheat bread 
A) a decrease in the price of corn, a substitute for wheat 
B) a technological advance that lowers the cost of producing wheat 
C) an increase in the cost of producing wheat 
D) a change in consumer preferences, causing them to prefer plain white bread to whole-wheat bread

Question 8

Figure 3-18  
-Refer to Figure 3-18. Which area represents consumer surplus at a price of P2?

Accepted Answer

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

Question 9

If a large percentage increase in the price of a good results in a small percentage increase in the quantity supplied of the good, supply is said to be

Accepted Answer

A) horizontal. 
B) relatively inelastic. 
C) relatively elastic. 
D) income proof. 
A) horizontal. 
B) relatively inelastic. 
C) relatively elastic. 
D) income proof.

Question 10

Figure 3-15  
-Refer to Figure 3-15. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market?

Accepted Answer

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

Question 11

If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively

Accepted Answer

A) inelastic. 
B) elastic. 
C) robust. 
D) inverse. 
A) inelastic. 
B) elastic. 
C) robust. 
D) inverse.

Question 12

If cable TV service and satellite TV service are substitutes,

Accepted Answer

A) a decrease in the price of cable will decrease the demand for satellite TV. 
B) an increase in the price of cable will decrease the demand for satellite TV. 
C) an increase in the price of cable will generally have no effect on the demand for satellite TV. 
D) an increase in the price of cable will shift the demand curve for satellite TV to the left. 
A) a decrease in the price of cable will decrease the demand for satellite TV. 
B) an increase in the price of cable will decrease the demand for satellite TV. 
C) an increase in the price of cable will generally have no effect on the demand for satellite TV. 
D) an increase in the price of cable will shift the demand curve for satellite TV to the left.

Question 13

For a typical product, an increase in consumer income will cause the market demand for the product 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 14

Use the figure below to answer the following question(s).
Figure 3-13  
-Refer to Figure 3-13. The market for margarine was initially in equilibrium at point

Accepted Answer

A) r. 
B) s. 
C) t. 
D) u. 
E) Other things constant, an increase in the price of soybean oil, an important ingredient used to produce margarine, would likely move the equilibrium in this market toward point 
A) r. 
B) s. 
C) t. 
D) u. 
E) Other things constant, an increase in the price of soybean oil, an important ingredient used to produce margarine, would likely move the equilibrium in this market toward point

Question 15

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

Accepted Answer

A) political representatives are elected democratically. 
B) competitive markets direct the actions of self-interested individuals. 
C) the selfish instincts of individuals are controlled. 
D) workers are able to organize and develop strong unions. 
A) political representatives are elected democratically. 
B) competitive markets direct the actions of self-interested individuals. 
C) the selfish instincts of individuals are controlled. 
D) workers are able to organize and develop strong unions.

Question 16

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

Accepted Answer

A) are essentially correct. 
B) contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. 
C) contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. 
D) contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars. 
A) are essentially correct. 
B) contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. 
C) contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. 
D) contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

Prices direct economic activity in a market economy by

Two goods are considered substitutes if

Under competitive conditions, market prices

Which of the following occurs when a shortage occurs in the market for a good?

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

The law of demand refers to the

Which of the following would most likely cause the supply of wheat to increase?

Figure 3-18 -Refer to Figure 3-18. Which area represents consumer surplus at a price of P₂?

If a large percentage increase in the price of a good results in a small percentage increase in the quantity supplied of the good, supply is said to be

Figure 3-15 -Refer to Figure 3-15. Which area represents the increase in producer surplus when the price rises from P₁ to P₂ due to new producers entering the market?

If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively

If cable TV service and satellite TV service are substitutes,

For a typical product, an increase in consumer income will cause the market demand for the product to

Use the figure below to answer the following question(s). Figure 3-13 -Refer to Figure 3-13. The market for margarine was initially in equilibrium at point

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

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

Prices direct economic activity in a market economy by

Two goods are considered substitutes if

Under competitive conditions, market prices

Which of the following occurs when a shortage occurs in the market for a good?

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

The law of demand refers to the

Which of the following would most likely cause the supply of wheat to increase?

Figure 3-18 -Refer to Figure 3-18. Which area represents consumer surplus at a price of P2?

If a large percentage increase in the price of a good results in a small percentage increase in the quantity supplied of the good, supply is said to be

Figure 3-15 -Refer to Figure 3-15. Which area represents the increase in producer surplus when the price rises from P1 to P2 due to new producers entering the market?

If the quantity of a good supplied is highly sensitive to the price of the good, economists say the supply of the good is relatively

If cable TV service and satellite TV service are substitutes,

For a typical product, an increase in consumer income will cause the market demand for the product to

Use the figure below to answer the following question(s). Figure 3-13 -Refer to Figure 3-13. The market for margarine was initially in equilibrium at point

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

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 3-18 -Refer to Figure 3-18. Which area represents consumer surplus at a price of P₂?

Figure 3-15 -Refer to Figure 3-15. Which area represents the increase in producer surplus when the price rises from P₁ to P₂ due to new producers entering the market?