Question 1

According to the invisible hand principle, competitive markets generally

Accepted Answer

A)  bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent. 
B)  bring the self-interest of individuals into harmony with the efficient allocation of resources when the behavior of individuals is directed by democratic centralized planning. 
C)  require central direction; otherwise, the actions of self-interested individuals will conflict with the general interests of society. 
D)  promote the economic welfare of self-interested producers at the expense of unorganized groups such as consumers and taxpayers. 
A)  bring the self-interest of individuals into harmony with the efficient allocation of resources, even though centralized planning of economic activities is absent. 
B)  bring the self-interest of individuals into harmony with the efficient allocation of resources when the behavior of individuals is directed by democratic centralized planning. 
C)  require central direction; otherwise, the actions of self-interested individuals will conflict with the general interests of society. 
D)  promote the economic welfare of self-interested producers at the expense of unorganized groups such as consumers and taxpayers.

Question 2

At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?

Accepted Answer

A)  Tyrone's demand has decreased. 
B)  Tyrone's demand has increased. 
C)  Tyrone's quantity demanded has decreased, and his demand has not changed. 
D)  Tyrone's quantity demanded has increased, and his demand has increased. 
E)  Tyrone's demand has increased, and his quantity demanded has decreased. 
A)  Tyrone's demand has decreased. 
B)  Tyrone's demand has increased. 
C)  Tyrone's quantity demanded has decreased, and his demand has not changed. 
D)  Tyrone's quantity demanded has increased, and his demand has increased. 
E)  Tyrone's demand has increased, and his quantity demanded has decreased.

Question 3

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Accepted Answer

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

Question 4

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

Accepted Answer

A)  A real world savings account. 
B)  An equity (stock) mutual fund. 
C)  A bond mutual fund. 
D)  A checking account at a local bank. 
A)  A real world savings account. 
B)  An equity (stock) mutual fund. 
C)  A bond mutual fund. 
D)  A checking account at a local bank.

Question 5

According to the law of supply, as the price of a good increases,

Accepted Answer

A)  buyers will buy more of the good. 
B)  buyers will buy less of the good. 
C)  sellers will produce more of the good. 
D)  sellers will produce less of the good. 
A)  buyers will buy more of the good. 
B)  buyers will buy less of the good. 
C)  sellers will produce more of the good. 
D)  sellers will produce less of the good.

Question 6

When economists say an activity is consistent with economic efficiency, they mean

Accepted Answer

A)  a majority of citizens favor the activity. 
B)  the benefits that result from the activity exceed the costs. 
C)  the number of people who gain from the activity exceeds the number on whom costs are imposed. 
D)  the costs that result from the activity exceed the benefits. 
A)  a majority of citizens favor the activity. 
B)  the benefits that result from the activity exceed the costs. 
C)  the number of people who gain from the activity exceeds the number on whom costs are imposed. 
D)  the costs that result from the activity exceed the benefits.

Question 7

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 8

If equilibrium is present in a market,

Accepted Answer

A)  there is generally either a shortage or a surplus. 
B)  quantity demanded equals quantity supplied. 
C)  quantity demanded exceeds quantity supplied. 
D)  quantity supplied exceeds quantity demanded. 
A)  there is generally either a shortage or a surplus. 
B)  quantity demanded equals quantity supplied. 
C)  quantity demanded exceeds quantity supplied. 
D)  quantity supplied exceeds quantity demanded.

Question 9

Consumer surplus is the area on the graph

Accepted Answer

A)  above the supply curve and below the demand curve. 
B)  below the demand curve and above the market price. 
C)  that represents the gains that producers receive when they sell a product. 
D)  that reflect the opportunity cost of producing the a good. 
A)  above the supply curve and below the demand curve. 
B)  below the demand curve and above the market price. 
C)  that represents the gains that producers receive when they sell a product. 
D)  that reflect the opportunity cost of producing the a good.

Question 10

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest 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 11

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

Accepted Answer

A)  lower; larger 
B)  lower; smaller 
C)  higher; larger 
D)  higher; smaller 
A)  lower; larger 
B)  lower; smaller 
C)  higher; larger 
D)  higher; smaller

Question 12

Figure 3-20  
-Refer to Figure 3-20. If 110 units of the good are being bought and sold, then

Accepted Answer

A)  the cost to sellers is equal to the value to buyers. 
B)  the value to buyers is greater than the cost to sellers. 
C)  the cost to sellers is greater than the value to buyers. 
D)  producer surplus is greater than consumer surplus. 
A)  the cost to sellers is equal to the value to buyers. 
B)  the value to buyers is greater than the cost to sellers. 
C)  the cost to sellers is greater than the value to buyers. 
D)  producer surplus is greater than consumer surplus.

Question 13

When economists say the quantity supplied of a product has decreased, they mean the

Accepted Answer

A)  supply curve has shifted to the left. 
B)  supply curve has shifted to the right. 
C)  price of the product has risen, and consequently, suppliers are producing more of it. 
D)  price of the product has fallen, and consequently, suppliers are producing less of it. 
A)  supply curve has shifted to the left. 
B)  supply curve has shifted to the right. 
C)  price of the product has risen, and consequently, suppliers are producing more of it. 
D)  price of the product has fallen, and consequently, suppliers are producing less of it.

Question 14

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the

Accepted Answer

A)  supply and demand curves shifting to the right. 
B)  supply and demand curves shifting to the left. 
C)  supply curve shifting to the left, with no change in demand. 
D)  demand curve shifting to the right, with no change in supply. 
A)  supply and demand curves shifting to the right. 
B)  supply and demand curves shifting to the left. 
C)  supply curve shifting to the left, with no change in demand. 
D)  demand curve shifting to the right, with no change in supply.

Question 15

Which of the following would be most likely to push stock prices higher?

Accepted Answer

A)  higher interest rates and the expectation of larger future corporate profits 
B)  higher interest rates and the expectation of smaller future corporate profits 
C)  lower interest rates and the expectation of larger future corporate profits 
D)  lower interest rates and the expectation of smaller future corporate profits 
A)  higher interest rates and the expectation of larger future corporate profits 
B)  higher interest rates and the expectation of smaller future corporate profits 
C)  lower interest rates and the expectation of larger future corporate profits 
D)  lower interest rates and the expectation of smaller future corporate profits

Question 16

Which of the following would tend to increase the value of a future stream of income?

Accepted Answer

A)  an increase in the rate of inflation 
B)  an increase in the interest rate 
C)  a reduction in the interest rate 
D)  a reduction in the size of the expected future income 
A)  an increase in the rate of inflation 
B)  an increase in the interest rate 
C)  a reduction in the interest rate 
D)  a reduction in the size of the expected future income

Question 17

An agricultural economist reports that corn prices are very high this year and that corn growers are earning substantial profits. He concludes that government action is needed to direct more farmers to grow corn. Is such action necessary? Why or why not?

Accepted Answer

No government action is necessary to dir

Question 18

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Accepted Answer

A)  No; lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains) and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains) and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation and inflation is generally good for the stock market. 
A)  No; lower interest rates will tend to slow down the economy and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains) and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains) and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation and inflation is generally good for the stock market.

Question 19

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 20

Assume that black beans and rice are consistently in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?

Accepted Answer

A)  If the price of black beans rose and the consumption of rice remained the same, they would be substitutes. 
B)  If the price of black beans rose and the consumption of rice increased, they would be substitutes. 
C)  If the price of black beans rose and the consumption of rice decreased, they would be substitutes. 
D)  If the price of black beans rose and the consumption of both goods remained the same, they would be complements. 
A)  If the price of black beans rose and the consumption of rice remained the same, they would be substitutes. 
B)  If the price of black beans rose and the consumption of rice increased, they would be substitutes. 
C)  If the price of black beans rose and the consumption of rice decreased, they would be substitutes. 
D)  If the price of black beans rose and the consumption of both goods remained the same, they would be complements.

According to the invisible hand principle, competitive markets generally

At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

According to the law of supply, as the price of a good increases,

When economists say an activity is consistent with economic efficiency, they mean

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

If equilibrium is present in a market,

Consumer surplus is the area on the graph

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest these funds in a diverse set of stocks?

A firm's stock price will be higher when the interest rate is and the value of the firm's expected future profits are .

Figure 3-20 -Refer to Figure 3-20. If 110 units of the good are being bought and sold, then

When economists say the quantity supplied of a product has decreased, they mean the

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the

Which of the following would be most likely to push stock prices higher?

Which of the following would tend to increase the value of a future stream of income?

An agricultural economist reports that corn prices are very high this year and that corn growers are earning substantial profits. He concludes that government action is needed to direct more farmers to grow corn. Is such action necessary? Why or why not?

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

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

Assume that black beans and rice are consistently in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?

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

According to the invisible hand principle, competitive markets generally

At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Which of the following makes it possible for even a small investor to hold a diverse set of stocks and still keep the cost of purchasing additional stock holdings low?

According to the law of supply, as the price of a good increases,

When economists say an activity is consistent with economic efficiency, they mean

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

If equilibrium is present in a market,

Consumer surplus is the area on the graph

Which of the following provides young people with a strong incentive to make regular payments into a retirement program and invest these funds in a diverse set of stocks?

A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.

Figure 3-20 -Refer to Figure 3-20. If 110 units of the good are being bought and sold, then

When economists say the quantity supplied of a product has decreased, they mean the

Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the

Which of the following would be most likely to push stock prices higher?

Which of the following would tend to increase the value of a future stream of income?

An agricultural economist reports that corn prices are very high this year and that corn growers are earning substantial profits. He concludes that government action is needed to direct more farmers to grow corn. Is such action necessary? Why or why not?

Stock analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

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

Assume that black beans and rice are consistently in the diet of one particular family. How could you tell if these goods were complements, substitutes, or unrelated goods?

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

A firm's stock price will be higher when the interest rate is and the value of the firm's expected future profits are .