Question 1

Figure 3-21  
-Refer to Figure 3-21. At the quantity Q2,

Accepted Answer

A)  the value to buyers and the cost to sellers are both P2. 
B)  the value to buyers is P2 and the cost to sellers is P3. 
C)  the value to buyers and the cost to sellers are both P3. 
D)  the value to buyers is P3 and the cost to sellers is P2. 
A)  the value to buyers and the cost to sellers are both P2. 
B)  the value to buyers is P2 and the cost to sellers is P3. 
C)  the value to buyers and the cost to sellers are both P3. 
D)  the value to buyers is P3 and the cost to sellers is P2.

Question 2

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 3

Just before Valentine's Day, the price of roses increases dramatically. This is because

Accepted Answer

A)  self-interested individuals try to charge more for a good than consumers are willing to pay. 
B)  demand increases while the supply of roses remains relatively constant. 
C)  the supply curve of roses is highly elastic. 
D)  the demand for roses is relatively inelastic most of the year, but becomes more elastic as demand increases. 
A)  self-interested individuals try to charge more for a good than consumers are willing to pay. 
B)  demand increases while the supply of roses remains relatively constant. 
C)  the supply curve of roses is highly elastic. 
D)  the demand for roses is relatively inelastic most of the year, but becomes more elastic as demand increases.

Question 4

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

Accepted Answer

A)  the expectation of a recession in the near future 
B)  the expectation of inflation in the near future 
C)  higher interest rates 
D)  lower interest rates 
A)  the expectation of a recession in the near future 
B)  the expectation of inflation in the near future 
C)  higher interest rates 
D)  lower interest rates

Question 5

The random walk theory indicates that

Accepted Answer

A)  investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B)  while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C)  changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D)  managed mutual funds will persistently outperform indexed funds. 
A)  investors can make money by purchasing stocks that are widely expected to earn substantial profits in the future. 
B)  while changes in the prices of specific stocks are difficult to predict, experts are able to forecast the future direction of broad stock market indexes with a high degree of accuracy. 
C)  changes in stock prices are driven by surprise occurrences that are difficult for anyone to predict accurately. 
D)  managed mutual funds will persistently outperform indexed funds.

Question 6

Assume the demand curve for shampoo is downward sloping. If the price of shampoo falls from $1.50 to $1.25 per bottle,

Accepted Answer

A)  the demand for shampoo will fall. 
B)  the demand for shampoo will rise. 
C)  a larger quantity of shampoo will be demanded. 
D)  a smaller quantity of shampoo will be demanded. 
A)  the demand for shampoo will fall. 
B)  the demand for shampoo will rise. 
C)  a larger quantity of shampoo will be demanded. 
D)  a smaller quantity of shampoo will be demanded.

Question 7

When property rights are well defined and markets are competitive, the

Accepted Answer

A)  market equilibrium violates the conditions for economic efficiency. 
B)  market equilibrium is consistent with economic efficiency. 
C)  conditions necessary for economic efficiency no longer apply. 
D)  quantity supplied will rarely equal the quantity demanded. 
A)  market equilibrium violates the conditions for economic efficiency. 
B)  market equilibrium is consistent with economic efficiency. 
C)  conditions necessary for economic efficiency no longer apply. 
D)  quantity supplied will rarely equal the quantity demanded.

Question 8

The law of demand refers to the

Accepted Answer

A)  decrease in price that can be expected as more units of a product are demanded. 
B)  increase in price 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 demanded. 
D)  increase in the quantity of a good available when its price increases. 
A)  decrease in price that can be expected as more units of a product are demanded. 
B)  increase in price 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 demanded. 
D)  increase in the quantity of a good available when its price increases.

Question 9

Which of the following best represents the effects of a decrease in the price of belts, other things being equal?

Accepted Answer

A)  An upward movement along the demand curve for belts. 
B)  A downward movement along the demand curve for belts. 
C)  A rightward shift in the demand curve for belts. 
D)  A leftward shift in the demand curve for belts. 
A)  An upward movement along the demand curve for belts. 
B)  A downward movement along the demand curve for belts. 
C)  A rightward shift in the demand curve for belts. 
D)  A leftward shift in the demand curve for belts.

Question 10

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

Accepted Answer

A)  a decrease in the supply of automobiles, which is a shift to the right of the supply curve. 
B)  a decrease in the supply of automobiles, which is a shift to the left of the supply curve. 
C)  an increase in the supply of automobiles, which is a shift to the right of the supply curve. 
D)  an increase in the supply of automobiles, which is a shift to the left of the supply curve. 
A)  a decrease in the supply of automobiles, which is a shift to the right of the supply curve. 
B)  a decrease in the supply of automobiles, which is a shift to the left of the supply curve. 
C)  an increase in the supply of automobiles, which is a shift to the right of the supply curve. 
D)  an increase in the supply of automobiles, which is a shift to the left of the supply curve.

Question 11

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Accepted Answer

A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices. 
A)  The demand for beef would increase, increasing beef prices. 
B)  The demand for beef would decrease, decreasing beef prices. 
C)  The supply of beef would increase, decreasing beef prices. 
D)  The supply of beef would decrease, increasing beef prices.

Question 12

The forces of supply and demand assure that

Accepted Answer

A)  demand curves and supply curves tend to shift to the right as time goes by. 
B)  the price of a good will eventually rise in response to an excess demand for that good. 
C)  when the supply curve for a good shifts, the demand curve for that good shifts in response. 
D)  the equilibrium price of a good will be rising more often than it will be falling. 
A)  demand curves and supply curves tend to shift to the right as time goes by. 
B)  the price of a good will eventually rise in response to an excess demand for that good. 
C)  when the supply curve for a good shifts, the demand curve for that good shifts in response. 
D)  the equilibrium price of a good will be rising more often than it will be falling.

Question 13

Figure 3-17.
-Refer to Figure 3-17. Area C represents

Accepted Answer

A)  the decrease in consumer surplus that results from a downward-sloping demand curve. 
B)  consumer surplus to new consumers who enter the market when the price falls from P2 to P1. 
C)  the increase in producer surplus when quantity sold increases from Q2 to Q1. 
D)  the decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2. 
A)  the decrease in consumer surplus that results from a downward-sloping demand curve. 
B)  consumer surplus to new consumers who enter the market when the price falls from P2 to P1. 
C)  the increase in producer surplus when quantity sold increases from Q2 to Q1. 
D)  the decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2.

Question 14

A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will affect the market for peanut butter and the market for jelly, a complementary good.

Accepted Answer

Higher peanut prices will shift the supp

Question 15

Market prices provide information to consumers, helping them coordinate their activities so long as

Accepted Answer

A)  competition is present and buyers and sellers are free to choose mutually agreeable prices. 
B)  prices are not allowed to rise too high, causing a shortage. 
C)  prices are legally kept equal in all markets, preventing unfair price increases in markets with shortages and unfair price decreases when a market surplus is present. 
D)  the government carefully screens producers and effectively keeps inefficient producers out of the market. 
A)  competition is present and buyers and sellers are free to choose mutually agreeable prices. 
B)  prices are not allowed to rise too high, causing a shortage. 
C)  prices are legally kept equal in all markets, preventing unfair price increases in markets with shortages and unfair price decreases when a market surplus is present. 
D)  the government carefully screens producers and effectively keeps inefficient producers out of the market.

Question 16

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

Accepted Answer

A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn, they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes. 
A)  There is no such thing as a free lunch. 
B)  People buy more when prices are low than when prices are high. 
C)  No matter how much people earn, they tend to spend more than they earn. 
D)  Households and firms interacting in markets are guided by an "invisible hand" that leads them to desirable market outcomes.

Question 17

The Invisible Hand Principle suggests that

Accepted Answer

A)  market prices direct individuals to produce more goods. 
B)  individuals pursuing their own interests detract from the economic well-being of society. 
C)  there should be stronger governmental initiatives to ensure cooperation for the betterment of society. 
D)  market forces tend to channel the actions of self-interested individuals into activities that promote the general betterment of society. 
A)  market prices direct individuals to produce more goods. 
B)  individuals pursuing their own interests detract from the economic well-being of society. 
C)  there should be stronger governmental initiatives to ensure cooperation for the betterment of society. 
D)  market forces tend to channel the actions of self-interested individuals into activities that promote the general betterment of society.

Question 18

Historically, when a diverse set of stocks is held over a lengthy time period, stocks have yielded a ____ rate of return, and the variation in the rate of return has been ____.

Accepted Answer

A)  low; low 
B)  low; high 
C)  high; low 
D)  high; high 
A)  low; low 
B)  low; high 
C)  high; low 
D)  high; high

Question 19

If DeShawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

Accepted Answer

A)  DeShawn is an irrational consumer. 
B)  The seller earned a $10,000 profit on the sale of the car. 
C)  DeShawn reaped $10,000 of consumer surplus from the transaction. 
D)  The seller received $10,000 worth of producer surplus on the transaction. 
A)  DeShawn is an irrational consumer. 
B)  The seller earned a $10,000 profit on the sale of the car. 
C)  DeShawn reaped $10,000 of consumer surplus from the transaction. 
D)  The seller received $10,000 worth of producer surplus on the transaction.

Question 20

Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the United States and asks to see a market in action. Where would you take her? Did you give her a complete showing of this market?

Accepted Answer

Most students will provide answers such

Figure 3-21 -Refer to Figure 3-21. At the quantity Q₂,

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

Just before Valentine's Day, the price of roses increases dramatically. This is because

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

The random walk theory indicates that

Assume the demand curve for shampoo is downward sloping. If the price of shampoo falls from $1.50 to $1.25 per bottle,

When property rights are well defined and markets are competitive, the

The law of demand refers to the

Which of the following best represents the effects of a decrease in the price of belts, other things being equal?

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

The forces of supply and demand assure that

Figure 3-17. -Refer to Figure 3-17. Area C represents

A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will affect the market for peanut butter and the market for jelly, a complementary good.

Market prices provide information to consumers, helping them coordinate their activities so long as

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

The Invisible Hand Principle suggests that

Historically, when a diverse set of stocks is held over a lengthy time period, stocks have yielded a rate of return, and the variation in the rate of return has been .

If DeShawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the United States and asks to see a market in action. Where would you take her? Did you give her a complete showing of this market?

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

Figure 3-21 -Refer to Figure 3-21. At the quantity Q2,

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

Just before Valentine's Day, the price of roses increases dramatically. This is because

Which of the following would be most likely to cause the price/earnings ratio of stocks to rise?

The random walk theory indicates that

Assume the demand curve for shampoo is downward sloping. If the price of shampoo falls from $1.50 to $1.25 per bottle,

When property rights are well defined and markets are competitive, the

The law of demand refers to the

Which of the following best represents the effects of a decrease in the price of belts, other things being equal?

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

The forces of supply and demand assure that

Figure 3-17. -Refer to Figure 3-17. Area C represents

A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will affect the market for peanut butter and the market for jelly, a complementary good.

Market prices provide information to consumers, helping them coordinate their activities so long as

Which of the following observations was made famous by Adam Smith in his book The Wealth of Nations?

The Invisible Hand Principle suggests that

Historically, when a diverse set of stocks is held over a lengthy time period, stocks have yielded a ____ rate of return, and the variation in the rate of return has been ____.

If DeShawn only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car, this indicates that

Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the United States and asks to see a market in action. Where would you take her? Did you give her a complete showing of this market?

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 3-21 -Refer to Figure 3-21. At the quantity Q₂,

Historically, when a diverse set of stocks is held over a lengthy time period, stocks have yielded a rate of return, and the variation in the rate of return has been .