Question 1

If salsa and nacho chips are complements, an increase in the price of nacho chips would

Accepted Answer

A)  increase the price of salsa. 
B)  decrease the demand for salsa. 
C)  increase the demand for salsa. 
D)  have no effect on the demand for salsa. 
A)  increase the price of salsa. 
B)  decrease the demand for salsa. 
C)  increase the demand for salsa. 
D)  have no effect on the demand for salsa.

Question 2

Which of the following is true?

Accepted Answer

A)  Managed equity funds that have yielded attractive returns during the last 5 or 10 years can generally be counted on to yield similar returns in the future. 
B)  Managed funds generally outperform indexed equity mutual funds. 
C)  An investment strategy that yielded a high rate of return in the past will often yield below-average returns in the future. 
D)  Indexed equity mutual funds are usually tied directly to either the Consumer Price Index or the GDP deflator. 
A)  Managed equity funds that have yielded attractive returns during the last 5 or 10 years can generally be counted on to yield similar returns in the future. 
B)  Managed funds generally outperform indexed equity mutual funds. 
C)  An investment strategy that yielded a high rate of return in the past will often yield below-average returns in the future. 
D)  Indexed equity mutual funds are usually tied directly to either the Consumer Price Index or the GDP deflator.

Question 3

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 new buyers entering the market?

Accepted Answer

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

Question 4

Which of the following about investments is true?

Accepted Answer

A)  People who invest in the stock market are virtually certain to make money. 
B)  Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C)  The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D)  In the long run, corporate bonds can be expected to yield a higher real rate of return than ownership of stocks. 
A)  People who invest in the stock market are virtually certain to make money. 
B)  Investors in the stock market can reduce their risk if they hold shares of specific stocks for only short periods of time. 
C)  The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. 
D)  In the long run, corporate bonds can be expected to yield a higher real rate of return than ownership of stocks.

Question 5

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Accepted Answer

A)  low average real rate of return, and the variation in that return has been extremely high. 
B)  high average real rate of return, and the variation in that return has been relatively small. 
C)  low average real rate of return, and the variation in that return has been relatively small. 
D)  high average real rate of return, and the variation in that return has been extremely high. 
A)  low average real rate of return, and the variation in that return has been extremely high. 
B)  high average real rate of return, and the variation in that return has been relatively small. 
C)  low average real rate of return, and the variation in that return has been relatively small. 
D)  high average real rate of return, and the variation in that return has been extremely high.

Question 6

Suppose demand increases and supply decreases. Which of the following will happen?

Accepted Answer

A)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. 
B)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. 
C)  Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. 
D)  Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. 
E)  The change in equilibrium price and quantity cannot be determined. 
A)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. 
B)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase. 
C)  Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. 
D)  Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. 
E)  The change in equilibrium price and quantity cannot be determined.

Question 7

Figure 3-22        
-Refer to Figure 3-22. Graph A shows which of the following?

Accepted Answer

A)  An increase in demand and an increase in quantity supplied. 
B)  An increase in demand and an increase in supply. 
C)  An increase in quantity demanded and an increase in quantity supplied. 
D)  An increase in supply and an increase in quantity demanded. 
A)  An increase in demand and an increase in quantity supplied. 
B)  An increase in demand and an increase in supply. 
C)  An increase in quantity demanded and an increase in quantity supplied. 
D)  An increase in supply and an increase in quantity demanded.

Question 8

An indexed equity mutual fund

Accepted Answer

A)  is directly tied to either the consumer price index or the GDP deflator. 
B)  is a fund that hires a manager who will try to pick the stocks that will increase most in value in the future. 
C)  merely holds stocks in the same proportion as they exist in a broad stock market index like the Standard & Poor's 500. 
D)  will have high operating costs because these funds engage in a substantial amount of stock trading. 
A)  is directly tied to either the consumer price index or the GDP deflator. 
B)  is a fund that hires a manager who will try to pick the stocks that will increase most in value in the future. 
C)  merely holds stocks in the same proportion as they exist in a broad stock market index like the Standard & Poor's 500. 
D)  will have high operating costs because these funds engage in a substantial amount of stock trading.

Question 9

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 10

Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

Accepted Answer

A)  $25. 
B)  $110. 
C)  $135. 
D)  $160. 
A)  $25. 
B)  $110. 
C)  $135. 
D)  $160.

Question 11

If the demand for a good is relatively elastic, this means that consumer purchases of the good are

Accepted Answer

A)  not very sensitive to the price of the good. 
B)  highly sensitive to the price of the good. 
C)  unrelated to the price of the good. 
D)  unaffected by changes in the income level of consumers. 
A)  not very sensitive to the price of the good. 
B)  highly sensitive to the price of the good. 
C)  unrelated to the price of the good. 
D)  unaffected by changes in the income level of consumers.

Question 12

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

Accepted Answer

A)  vertical. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  robust. 
A)  vertical. 
B)  relatively inelastic. 
C)  relatively elastic. 
D)  robust.

Question 13

Since 1802, the American stock market has yielded an average annual real return (the return adjusted for inflation) of approximately

Accepted Answer

A)  3 percent. 
B)  5 percent. 
C)  7 percent 
D)  11 percent. 
A)  3 percent. 
B)  5 percent. 
C)  7 percent 
D)  11 percent.

Question 14

Which of the following would reduce the price of basketballs and increase the quantity sold?

Accepted Answer

A)  An increase in the demand for basketballs. 
B)  A decrease in the demand for basketballs. 
C)  A decrease in the supply of basketballs. 
D)  An increase in the supply of basketballs. 
A)  An increase in the demand for basketballs. 
B)  A decrease in the demand for basketballs. 
C)  A decrease in the supply of basketballs. 
D)  An increase in the supply of basketballs.

Question 15

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

Accepted Answer

A)  only if buyers and sellers really care, personally, about economic efficiency. 
B)  even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. 
C)  even if business firms fail to produce goods efficiently. 
D)  if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely. 
A)  only if buyers and sellers really care, personally, about economic efficiency. 
B)  even when each market participant cares only about their own self interest rather than about the overall efficiency of resource use. 
C)  even if business firms fail to produce goods efficiently. 
D)  if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely.

Question 16

The demand schedule for a good

Accepted Answer

A)  indicates the relationship between the price of the good and the price of other goods. 
B)  indicates the quantities of the good that people will buy at various prices. 
C)  illustrates the quantity producers will provide at alternative prices. 
D)  is determined primarily by the cost of producing the good. 
A)  indicates the relationship between the price of the good and the price of other goods. 
B)  indicates the quantities of the good that people will buy at various prices. 
C)  illustrates the quantity producers will provide at alternative prices. 
D)  is determined primarily by the cost of producing the good.

Question 17

A demand curve for flowers would show the

Accepted Answer

A)  number of flowers the floral shop is willing to sell at various prices. 
B)  number of people who need flowers. 
C)  quantity of people who want to buy these flowers. 
D)  number of flowers that will be purchased at various prices. 
A)  number of flowers the floral shop is willing to sell at various prices. 
B)  number of people who need flowers. 
C)  quantity of people who want to buy these flowers. 
D)  number of flowers that will be purchased at various prices.

Question 18

Use the figure below to answer the following question(s).
Figure 3-8  
-In Figure 3-8, if the initial demand and supply for soybeans were D1 and S1, how would a decrease in the cost of producing soybeans affect the market for soybeans?

Accepted Answer

A)  Demand would increase to D2, price would increase to P2, and the quantity would increase to S. 
B)  Supply would increase to S2, price would decrease to P0, and the quantity would increase to S. 
C)  Both demand and supply would increase so the price would remain at P1, but the quantity would increase to T. 
D)  None of the above would occur. 
A)  Demand would increase to D2, price would increase to P2, and the quantity would increase to S. 
B)  Supply would increase to S2, price would decrease to P0, and the quantity would increase to S. 
C)  Both demand and supply would increase so the price would remain at P1, but the quantity would increase to T. 
D)  None of the above would occur.

Question 19

Which of the following indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?

Accepted Answer

A)  These investors generally serve on the boards of directors of corporations. 
B)  These investors tend to buy and sell stocks in a way that rewards good management. 
C)  These investors help allocate capital efficiently among firms and among investment projects. 
D)  Both b and c are true. 
A)  These investors generally serve on the boards of directors of corporations. 
B)  These investors tend to buy and sell stocks in a way that rewards good management. 
C)  These investors help allocate capital efficiently among firms and among investment projects. 
D)  Both b and c are true.

Question 20

If an increase in the price of good X causes the demand for good Y to decrease, this indicates that

Accepted Answer

A)  X and Y are complements. 
B)  X and Y are substitutes. 
C)  X and Y are unrelated. 
D)  the demand for X is elastic, but the demand for Y is inelastic. 
A)  X and Y are complements. 
B)  X and Y are substitutes. 
C)  X and Y are unrelated. 
D)  the demand for X is elastic, but the demand for Y is inelastic.

If salsa and nacho chips are complements, an increase in the price of nacho chips would

Which of the following is true?

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 new buyers entering the market?

Which of the following about investments is true?

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Suppose demand increases and supply decreases. Which of the following will happen?

Figure 3-22 -Refer to Figure 3-22. Graph A shows which of the following?

An indexed equity mutual fund

Two goods are considered substitutes if

Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

If the demand for a good is relatively elastic, this means that consumer purchases of the good are

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

Since 1802, the American stock market has yielded an average annual real return (the return adjusted for inflation) of approximately

Which of the following would reduce the price of basketballs and increase the quantity sold?

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

The demand schedule for a good

A demand curve for flowers would show the

Use the figure below to answer the following question(s). Figure 3-8 -In Figure 3-8, if the initial demand and supply for soybeans were D₁ and S₁, how would a decrease in the cost of producing soybeans affect the market for soybeans?

Which of the following indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?

If an increase in the price of good X causes the demand for good Y to decrease, this indicates that

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

If salsa and nacho chips are complements, an increase in the price of nacho chips would

Which of the following is true?

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 new buyers entering the market?

Which of the following about investments is true?

Compared to other investments such as bonds, historically a diverse set of stocks held over a lengthy time period (for example, 30 or 40 years) has yielded a

Suppose demand increases and supply decreases. Which of the following will happen?

Figure 3-22 -Refer to Figure 3-22. Graph A shows which of the following?

An indexed equity mutual fund

Two goods are considered substitutes if

Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

If the demand for a good is relatively elastic, this means that consumer purchases of the good are

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

Since 1802, the American stock market has yielded an average annual real return (the return adjusted for inflation) of approximately

Which of the following would reduce the price of basketballs and increase the quantity sold?

The invisible hand principle indicates that competitive markets can help promote the efficient use of resources

The demand schedule for a good

A demand curve for flowers would show the

Use the figure below to answer the following question(s). Figure 3-8 -In Figure 3-8, if the initial demand and supply for soybeans were D1 and S1, how would a decrease in the cost of producing soybeans affect the market for soybeans?

Which of the following indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?

If an increase in the price of good X causes the demand for good Y to decrease, this indicates that

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

Use the figure below to answer the following question(s). Figure 3-8 -In Figure 3-8, if the initial demand and supply for soybeans were D₁ and S₁, how would a decrease in the cost of producing soybeans affect the market for soybeans?