Question 1

Which of the following is a major implication of the invisible hand concept?

Accepted Answer

A)  When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. 
B)  Prosperity cannot be achieved unless the selfish nature of people can be changed. 
C)  Competition is harmful to the health of an economy because it results in wasteful duplication. 
D)  Government-operated firms tend to have higher efficiency and lower costs than private sector firms. 
A)  When directed by competitive market prices, the actions of self-interested individuals will tend to promote overall economic prosperity. 
B)  Prosperity cannot be achieved unless the selfish nature of people can be changed. 
C)  Competition is harmful to the health of an economy because it results in wasteful duplication. 
D)  Government-operated firms tend to have higher efficiency and lower costs than private sector firms.

Question 2

If consumer tastes are changing more in favor of the consumption of a particular good the

Accepted Answer

A)  market demand curve will shift to the left. 
B)  consumer will move up a given demand curve, decreasing the quantity demanded. 
C)  consumer would move down a given demand curve, decreasing the quantity demanded. 
D)  consumer would move down a given demand curve, increasing the quantity demanded. 
E)  market demand curve would shift to the right. 
A)  market demand curve will shift to the left. 
B)  consumer will move up a given demand curve, decreasing the quantity demanded. 
C)  consumer would move down a given demand curve, decreasing the quantity demanded. 
D)  consumer would move down a given demand curve, increasing the quantity demanded. 
E)  market demand curve would shift to the right.

Question 3

Table 3-1
  
-Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $30, then their total consumer surplus is

Accepted Answer

A)  $−10. 
B)  $−6. 
C)  $20. 
D)  $30. 
A)  $−10. 
B)  $−6. 
C)  $20. 
D)  $30.

Question 4

Other things constant, an increase in consumer income will

Accepted Answer

A)  shift the demand curve for automobiles to the left. 
B)  shift the demand curve for automobiles to the right. 
C)  cause a movement along the demand curve for automobiles, but it will not shift the demand curve. 
D)  lead to a reduction in the supply of automobiles. 
A)  shift the demand curve for automobiles to the left. 
B)  shift the demand curve for automobiles to the right. 
C)  cause a movement along the demand curve for automobiles, but it will not shift the demand curve. 
D)  lead to a reduction in the supply of automobiles.

Question 5

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

Accepted Answer

A)  The supply of wheat would fall. 
B)  The supply of wheat would rise. 
C)  The demand for wheat would fall. 
D)  The demand for wheat would rise. 
A)  The supply of wheat would fall. 
B)  The supply of wheat would rise. 
C)  The demand for wheat would fall. 
D)  The demand for wheat would rise.

Question 6

If the demand for 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 7

Consider a stock with a 50 percent probability of zero net earnings and a 50 percent probability of net earnings equal to $20 per share each year continuously in the future. Furthermore, assume that people are risk averse. That is, they will have to be compensated for uncertainty accompanying variation in their future wealth. If the interest rate were 5 percent, how much would people be willing to pay for a share of this stock?

Accepted Answer

A)  $10 
B)  $200 
C)  less than $200 
D)  more than $200 
E)  $400 
A)  $10 
B)  $200 
C)  less than $200 
D)  more than $200 
E)  $400

Question 8

Consumers buy less of a good as its price increases because

Accepted Answer

A)  production costs have risen. 
B)  substitute goods are now relatively cheaper. 
C)  the income of consumers has effectively risen. 
D)  the higher price will make the good more valuable to each consumer. 
A)  production costs have risen. 
B)  substitute goods are now relatively cheaper. 
C)  the income of consumers has effectively risen. 
D)  the higher price will make the good more valuable to each consumer.

Question 9

Which of the following would most likely shift the supply curve to the left for Wii video games?

Accepted Answer

A)  an increase in the price of Wii video games 
B)  a decrease in the price of computer chips used to make Wii games 
C)  a decrease in the demand for Wii games 
D)  an increase in the price of electronic components used to produce the Wii games 
A)  an increase in the price of Wii video games 
B)  a decrease in the price of computer chips used to make Wii games 
C)  a decrease in the demand for Wii games 
D)  an increase in the price of electronic components used to produce the Wii games

Question 10

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

Accepted Answer

A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent 
A)  10 percent 
B)  20 percent 
C)  50 percent 
D)  80 percent

Question 11

Figure 3-19  
-Refer to Figure 3-19. If the government mandated a price increase from Pe to a higher price, then

Accepted Answer

A)  total surplus would decrease. 
B)  consumer surplus would increase. 
C)  total surplus would increase, since producer surplus would increase. 
D)  total surplus would remain unchanged. 
A)  total surplus would decrease. 
B)  consumer surplus would increase. 
C)  total surplus would increase, since producer surplus would increase. 
D)  total surplus would remain unchanged.

Question 12

The present value of $1 million to be received in the future will

Accepted Answer

A)  increase if the interest rate rises. 
B)  increase if the payment is received at a more distant time in the future. 
C)  be greater than $1 million. 
D)  increase if the interest rate were to fall from 8 percent to 4 percent. 
A)  increase if the interest rate rises. 
B)  increase if the payment is received at a more distant time in the future. 
C)  be greater than $1 million. 
D)  increase if the interest rate were to fall from 8 percent to 4 percent.

Question 13

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

Accepted Answer

A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices. 
A)  The prices of stocks tend to fluctuate more than the prices of bonds. 
B)  Over short periods of time, variation in the real rate of return of stocks is greater than bonds. 
C)  When held over lengthy periods like 30 or 40 years, historically, the rate of return on stocks has been both higher and less variable than that of bonds. 
D)  Lower interest rates will lead to higher bond prices.

Question 14

A recent study suggested that moderate wine drinking may actually benefit one's health. If this information leads to an increased demand for wine, we would expect

Accepted Answer

A)  both the price and quantity of wine sold to increase. 
B)  both the price and quantity of wine sold to decrease. 
C)  the price to decrease and the quantity of wine sold to increase. 
D)  the price to increase and the quantity of wine sold to decrease. 
A)  both the price and quantity of wine sold to increase. 
B)  both the price and quantity of wine sold to decrease. 
C)  the price to decrease and the quantity of wine sold to increase. 
D)  the price to increase and the quantity of wine sold to decrease.

Question 15

Economists maintain that the price of a product has no effect on demand. How can this be true?

Accepted Answer

When constructing the demand curve, pric

Question 16

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 17

When economists say the demand for a product has decreased, they mean

Accepted Answer

A)  the demand curve has shifted to the left. 
B)  the product price has increased, and as a consequence, consumers are buying less of the product. 
C)  consumers are now willing and able to buy more of this product at each possible price. 
D)  the demand curve has shifted to the right. 
A)  the demand curve has shifted to the left. 
B)  the product price has increased, and as a consequence, consumers are buying less of the product. 
C)  consumers are now willing and able to buy more of this product at each possible price. 
D)  the demand curve has shifted to the right.

Question 18

Table 3-2
  
-Refer to Table 3-2. Suppose each of the five sellers can supply at most one unit of the good; then the market quantity supplied is exactly 3 if the price is

Accepted Answer

A)  $670. 
B)  $770. 
C)  $970. 
D)  $1,170. 
A)  $670. 
B)  $770. 
C)  $970. 
D)  $1,170.

Question 19

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

Accepted Answer

A)  Take milk from government storage and sell it. 
B)  Encourage farmers to produce more milk. 
C)  Subsidize purchases of dairy equipment. 
D)  Encourage farmers to produce less milk. 
A)  Take milk from government storage and sell it. 
B)  Encourage farmers to produce more milk. 
C)  Subsidize purchases of dairy equipment. 
D)  Encourage farmers to produce less milk.

Question 20

A technological breakthrough lowers the cost of manufacturing microwave ovens. As a result, the market changes to a new equilibrium because of

Accepted Answer

A)  an upward movement along the demand curve for microwave ovens. 
B)  a rightward shift in the demand curve for microwave ovens. 
C)  a rightward shift in the supply curve for microwave ovens. 
D)  a shortage of microwave ovens. 
A)  an upward movement along the demand curve for microwave ovens. 
B)  a rightward shift in the demand curve for microwave ovens. 
C)  a rightward shift in the supply curve for microwave ovens. 
D)  a shortage of microwave ovens.

Which of the following is a major implication of the invisible hand concept?

If consumer tastes are changing more in favor of the consumption of a particular good the

Table 3-1 -Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $30, then their total consumer surplus is

Other things constant, an increase in consumer income will

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

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

Consumers buy less of a good as its price increases because

Which of the following would most likely shift the supply curve to the left for Wii video games?

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

Figure 3-19 -Refer to Figure 3-19. If the government mandated a price increase from P_e to a higher price, then

The present value of $1 million to be received in the future will

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

A recent study suggested that moderate wine drinking may actually benefit one's health. If this information leads to an increased demand for wine, we would expect

Economists maintain that the price of a product has no effect on demand. How can this be true?

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

When economists say the demand for a product has decreased, they mean

Table 3-2 -Refer to Table 3-2. Suppose each of the five sellers can supply at most one unit of the good; then the market quantity supplied is exactly 3 if the price is

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

A technological breakthrough lowers the cost of manufacturing microwave ovens. As a result, the market changes to a new equilibrium because of

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

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Exam 3: Demand, Supply, and the Market Process

Which of the following is a major implication of the invisible hand concept?

If consumer tastes are changing more in favor of the consumption of a particular good the

Table 3-1 -Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $30, then their total consumer surplus is

Other things constant, an increase in consumer income will

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

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

Consumers buy less of a good as its price increases because

Which of the following would most likely shift the supply curve to the left for Wii video games?

Currently, about ____ of U.S. households own stock, either directly or through an equity mutual fund.

Figure 3-19 -Refer to Figure 3-19. If the government mandated a price increase from Pe to a higher price, then

The present value of $1 million to be received in the future will

Which of the following provides the strongest argument for young people making regular payments into a retirement program that invests these funds in a diverse set of stocks?

A recent study suggested that moderate wine drinking may actually benefit one's health. If this information leads to an increased demand for wine, we would expect

Economists maintain that the price of a product has no effect on demand. How can this be true?

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

When economists say the demand for a product has decreased, they mean

Table 3-2 -Refer to Table 3-2. Suppose each of the five sellers can supply at most one unit of the good; then the market quantity supplied is exactly 3 if the price is

If you were a government official that wanted to raise the equilibrium price of milk, which of the following actions would you take?

A technological breakthrough lowers the cost of manufacturing microwave ovens. As a result, the market changes to a new equilibrium because of

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

Consumer Choice and Elasticity

Costs and the Supply of Goods

Price Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Price-Searcher Markets With High Entry Barriers

The Supply of and Demand for Productive Resources

Earnings, Productivity, and the Job Market

Investment, the Capital Market, and the Wealth of Nations

Income Inequality and Poverty

Gaining From International Trade

Filters

Figure 3-19 -Refer to Figure 3-19. If the government mandated a price increase from P_e to a higher price, then

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