Question 1

Which of the following is not a function of prices in a market system?

Accepted Answer

A)  Prices have the crucial job of balancing supply and demand. 
B)  Prices send signals to buyers and sellers to help them make rational economic decisions. 
C)  Prices coordinate economic activity. 
D)  Prices ensure an equitable distribution of goods and services among consumers. 
A)  Prices have the crucial job of balancing supply and demand. 
B)  Prices send signals to buyers and sellers to help them make rational economic decisions. 
C)  Prices coordinate economic activity. 
D)  Prices ensure an equitable distribution of goods and services among consumers.

Question 2

Two goods are considered substitutes only 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

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

Accepted Answer

A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall. 
A)  The price of orange juice will increase, and the quantity purchased will fall. 
B)  The price of orange juice will fall, and the quantity purchased will increase. 
C)  The price of orange juice will increase, and the quantity purchased will increase. 
D)  The price of orange juice will fall, and the quantity purchased will fall.

Question 4

Figure 3-17.
-Refer to Figure 3-16. When the price is P1, producer surplus is

Accepted Answer

A)  A. 
B)  C. 
C)  A + B. 
D)  C + D. 
A)  A. 
B)  C. 
C)  A + B. 
D)  C + D.

Question 5

Buying shares of corporate stock tends to be more risky when

Accepted Answer

A)  the stock of a single corporation is purchased. 
B)  the stock may have to be sold within a few months. 
C)  all stocks bought are in the same industry. 
D)  all of the above are true. 
A)  the stock of a single corporation is purchased. 
B)  the stock may have to be sold within a few months. 
C)  all stocks bought are in the same industry. 
D)  all of the above are true.

Question 6

Suppliers recognize there is a shortage in the market for their product when they notice that

Accepted Answer

A)  the quantity supplied exceeds the quantity demanded. 
B)  the quantity demanded is falling. 
C)  inventories are falling. 
D)  production exceeds new orders for the product. 
E)  government economists announce a shortage exists. 
A)  the quantity supplied exceeds the quantity demanded. 
B)  the quantity demanded is falling. 
C)  inventories are falling. 
D)  production exceeds new orders for the product. 
E)  government economists announce a shortage exists.

Question 7

Figure 3-22        
-Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 8

Figure 3-11  
-In Figure 3-11, suppose D1 and S1 indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S1 to S2?

Accepted Answer

A)  the invention of "folding" plates and cups that take up substantially less storage space in the kitchen 
B)  a decrease in consumer income 
C)  a decrease in the price of wood, a resource used to produce kitchen cabinets 
D)  an increase in the price of steel hinges, a resource used to produce kitchen cabinets 
A)  the invention of "folding" plates and cups that take up substantially less storage space in the kitchen 
B)  a decrease in consumer income 
C)  a decrease in the price of wood, a resource used to produce kitchen cabinets 
D)  an increase in the price of steel hinges, a resource used to produce kitchen cabinets

Question 9

If the demand for a good increased, 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 10

Which of the following is an implication of the random walk theory?

Accepted Answer

A)  Experts will be able to make money by picking and choosing the best stocks. 
B)  There is a systematic pattern to the movement of prices in the stock market. 
C)  Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D)  Even experts will be unable to predict the future movement of stock prices with any degree of accuracy. 
A)  Experts will be able to make money by picking and choosing the best stocks. 
B)  There is a systematic pattern to the movement of prices in the stock market. 
C)  Stock market investors can expect to earn a fairly steady real rate of return of about 7 percent annually. 
D)  Even experts will be unable to predict the future movement of stock prices with any degree of accuracy.

Question 11

When the market for a good is in equilibrium,

Accepted Answer

A)  consumer surplus will equal producer surplus. 
B)  the total value created for consumers will equal the total cost of production for business firms. 
C)  all units valued more highly than the opportunity cost of production will be supplied. 
D)  all units that have value will be produced, regardless of their cost of production. 
A)  consumer surplus will equal producer surplus. 
B)  the total value created for consumers will equal the total cost of production for business firms. 
C)  all units valued more highly than the opportunity cost of production will be supplied. 
D)  all units that have value will be produced, regardless of their cost of production.

Question 12

Willingness to pay

Accepted Answer

A)  measures the value that a buyer places on a good. 
B)  is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. 
C)  is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. 
D)  is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it. 
A)  measures the value that a buyer places on a good. 
B)  is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept. 
C)  is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept. 
D)  is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Question 13

Which of the following will lead to a decrease in supply of a good?

Accepted Answer

A)  an increase in the price of the good 
B)  an increase in consumer incomes 
C)  an increase in the price of an important resource used to produce the good 
D)  a technological advance that lowers the cost of producing the good 
A)  an increase in the price of the good 
B)  an increase in consumer incomes 
C)  an increase in the price of an important resource used to produce the good 
D)  a technological advance that lowers the cost of producing the good

Question 14

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 $15, then who would be willing to purchase the product?

Accepted Answer

A)  Mike 
B)  Mike and Sandy 
C)  Mike, Sandy, and Jonathan 
D)  Mike, Sandy, Jonathan, and Haley 
A)  Mike 
B)  Mike and Sandy 
C)  Mike, Sandy, and Jonathan 
D)  Mike, Sandy, Jonathan, and Haley

Question 15

Sam lives in a town with a population of 3,000. He says, "This town really needs a pizza restaurant. People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because they couldn't make any money." Evaluate Sam's statement.

Accepted Answer

His statement clearly conflicts with the

Question 16

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

Accepted Answer

A)  An increase in supply, higher equilibrium price, and lower equilibrium quantity. 
B)  A decrease in supply, lower equilibrium price, and lower equilibrium quantity. 
C)  An increase in supply, lower equilibrium price, and higher equilibrium quantity. 
D)  An increase in supply, higher equilibrium price, and higher equilibrium quantity. 
E)  A decrease in supply, lower equilibrium price, and higher equilibrium quantity. 
A)  An increase in supply, higher equilibrium price, and lower equilibrium quantity. 
B)  A decrease in supply, lower equilibrium price, and lower equilibrium quantity. 
C)  An increase in supply, lower equilibrium price, and higher equilibrium quantity. 
D)  An increase in supply, higher equilibrium price, and higher equilibrium quantity. 
E)  A decrease in supply, lower equilibrium price, and higher equilibrium quantity.

Question 17

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 18

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Accepted Answer

A)  surprising because the inflation rate was high during the 1970s. 
B)  not surprising because interest rates were low during the inflationary 1970s. 
C)  not surprising because interest rates were high during the inflationary 1970s. 
D)  surprising because the inflation rate was low during the 1970s. 
A)  surprising because the inflation rate was high during the 1970s. 
B)  not surprising because interest rates were low during the inflationary 1970s. 
C)  not surprising because interest rates were high during the inflationary 1970s. 
D)  surprising because the inflation rate was low during the 1970s.

Question 19

Which of the following would lead to an increase in the demand for rental apartments in your area?

Accepted Answer

A)  a reduction in the rental price of apartments 
B)  a sharp increase in the number of out-of-town students attending the local college 
C)  an increase in the cost of the materials used to construct apartment units. 
D)  an increase in unemployment and reduction in the income of people in your area 
A)  a reduction in the rental price of apartments 
B)  a sharp increase in the number of out-of-town students attending the local college 
C)  an increase in the cost of the materials used to construct apartment units. 
D)  an increase in unemployment and reduction in the income of people in your area

Question 20

When competition is present and property rights protected and enforced, market prices will

Accepted Answer

A)  discourage profit-seeking business firms from producing efficiently. 
B)  direct entrepreneurs toward production of goods that are inferior in quality. 
C)  encourage self-interested individuals to develop skills that are expected to be valuable in the future. 
D)  always decrease. 
A)  discourage profit-seeking business firms from producing efficiently. 
B)  direct entrepreneurs toward production of goods that are inferior in quality. 
C)  encourage self-interested individuals to develop skills that are expected to be valuable in the future. 
D)  always decrease.

Which of the following is not a function of prices in a market system?

Two goods are considered substitutes only if

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

Figure 3-17. -Refer to Figure 3-16. When the price is P₁, producer surplus is

Buying shares of corporate stock tends to be more risky when

Suppliers recognize there is a shortage in the market for their product when they notice that

Figure 3-22 -Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

Figure 3-11 -In Figure 3-11, suppose D₁ and S₁ indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S₁ to S₂?

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

Which of the following is an implication of the random walk theory?

When the market for a good is in equilibrium,

Willingness to pay

Which of the following will lead to a decrease in supply of a good?

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 $15, then who would be willing to purchase the product?

Sam lives in a town with a population of 3,000. He says, "This town really needs a pizza restaurant. People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because they couldn't make any money." Evaluate Sam's statement.

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

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,

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Which of the following would lead to an increase in the demand for rental apartments in your area?

When competition is present and property rights protected and enforced, market prices will

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 not a function of prices in a market system?

Two goods are considered substitutes only if

Which of the following is the most likely effect of lower apple juice prices on the price and quantity purchased of orange juice, a substitute product?

Figure 3-17. -Refer to Figure 3-16. When the price is P1, producer surplus is

Buying shares of corporate stock tends to be more risky when

Suppliers recognize there is a shortage in the market for their product when they notice that

Figure 3-22 -Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

Figure 3-11 -In Figure 3-11, suppose D1 and S1 indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S1 to S2?

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

Which of the following is an implication of the random walk theory?

When the market for a good is in equilibrium,

Willingness to pay

Which of the following will lead to a decrease in supply of a good?

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 $15, then who would be willing to purchase the product?

Sam lives in a town with a population of 3,000. He says, "This town really needs a pizza restaurant. People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because they couldn't make any money." Evaluate Sam's statement.

A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?

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,

During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was

Which of the following would lead to an increase in the demand for rental apartments in your area?

When competition is present and property rights protected and enforced, market prices will

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 3-17. -Refer to Figure 3-16. When the price is P₁, producer surplus is

Figure 3-11 -In Figure 3-11, suppose D₁ and S₁ indicate initial conditions in the market for kitchen cabinets. Which of the following would tend to cause the supply curve to shift from S₁ to S₂?