Question 1

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

Accepted Answer

A)  political representatives are elected democratically. 
B)  competitive markets direct the actions of self-interested individuals. 
C)  the selfish instincts of individuals are controlled. 
D)  workers are able to organize and develop strong unions. 
A)  political representatives are elected democratically. 
B)  competitive markets direct the actions of self-interested individuals. 
C)  the selfish instincts of individuals are controlled. 
D)  workers are able to organize and develop strong unions.

Question 2

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

Accepted Answer

A)  The price of the good will increase. 
B)  The price of the good will decrease. 
C)  The equilibrium quantity will increase. 
D)  The equilibrium quantity will decrease. 
A)  The price of the good will increase. 
B)  The price of the good will decrease. 
C)  The equilibrium quantity will increase. 
D)  The equilibrium quantity will decrease.

Question 3

Figure 3-12  
In Figure 3-12, suppose D 1 and S 1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D 1 to D 2?

Accepted Answer

A)  an increase in the price of milk, an ingredient used to produce ice cream 
B)  an increase in the price of frozen yogurt, a substitute for ice cream 
C)  a decrease in the price of sugar, an ingredient used to produce ice cream 
D)  a decrease in consumer income 
A)  an increase in the price of milk, an ingredient used to produce ice cream 
B)  an increase in the price of frozen yogurt, a substitute for ice cream 
C)  a decrease in the price of sugar, an ingredient used to produce ice cream 
D)  a decrease in consumer income

Question 4

How will consumers generally react to an increase in the price of butter?

Accepted Answer

A)  They will purchase a larger quantity of butter. 
B)  They will substitute other goods like margarine for the more expensive butter. 
C)  They will reduce their purchases of substitute goods like margarine. 
D)  They will continue purchasing the same quantity of butter at the higher price. 
A)  They will purchase a larger quantity of butter. 
B)  They will substitute other goods like margarine for the more expensive butter. 
C)  They will reduce their purchases of substitute goods like margarine. 
D)  They will continue purchasing the same quantity of butter at the higher price.

Question 5

Figure 3-18  
Refer to Figure 3-18. Which area represents consumer surplus at a price of P 1?

Accepted Answer

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

Question 6

Use the figure below to answer the following question(s).
Figure 3-3
 
In Figure 3-3, if the initial demand for margarine were D 1, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as

Accepted Answer

A)  a shift in the demand curve to D 2. 
B)  a shift in the demand curve to D 3. 
C)  a movement upward to the left along the original demand curve D 1. 
D)  none of the above. 
A)  a shift in the demand curve to D 2. 
B)  a shift in the demand curve to D 3. 
C)  a movement upward to the left along the original demand curve D 1. 
D)  none of the above.

Question 7

Graphically, what impact would an increase in the price of jet fuel have on the market for air travel?

Accepted Answer

A)  It would shift the supply curve for air travel to the right. 
B)  It would shift the supply curve for air travel to the left. 
C)  It would shift the demand curve for air travel to the right. 
D)  It would shift the demand curve for air travel to the left. 
A)  It would shift the supply curve for air travel to the right. 
B)  It would shift the supply curve for air travel to the left. 
C)  It would shift the demand curve for air travel to the right. 
D)  It would shift the demand curve for air travel to the left.

Question 8

Which of the following most accurately describes the invisible hand concept?

Accepted Answer

A)  Wise central planning by government is necessary for the efficient use of resources. 
B)  In a democratic setting, majority rule will result in the efficient use of resources. 
C)  In a market setting, when individuals pursue their own interests, they simultaneously tend to promote the public interest. 
D)  In a market setting, when individuals pursue their own interests, they tend to engage in activities that lower the overall economic welfare of society. 
A)  Wise central planning by government is necessary for the efficient use of resources. 
B)  In a democratic setting, majority rule will result in the efficient use of resources. 
C)  In a market setting, when individuals pursue their own interests, they simultaneously tend to promote the public interest. 
D)  In a market setting, when individuals pursue their own interests, they tend to engage in activities that lower the overall economic welfare of society.

Question 9

When economists say the quantity demanded of a product has increased, they mean the

Accepted Answer

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

Question 10

(I) The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good.

Accepted Answer

A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are false. 
D)  Both I and II are true. 
A)  I is true; II is false. 
B)  I is false; II is true. 
C)  Both I and II are false. 
D)  Both I and II are true.

Question 11

If consumer incomes go up and you are analyzing the market for Harley Davidson motorcycles, the effect on the demand for motorcycles, ceteris paribus, will be

Accepted Answer

A)  an upward movement along the demand curve for motorcycles. 
B)  a downward movement along the demand curve for motorcycles. 
C)  a rightward shift in the demand curve for motorcycles. 
D)  a leftward shift in the demand curve for motorcycles. 
A)  an upward movement along the demand curve for motorcycles. 
B)  a downward movement along the demand curve for motorcycles. 
C)  a rightward shift in the demand curve for motorcycles. 
D)  a leftward shift in the demand curve for motorcycles.

Question 12

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 13

Table 3-2
  Refer to Table 3-2. If the market price is $1,000, the producer surplus in the market is

Accepted Answer

A)  $700. 
B)  $750. 
C)  $2,250. 
D)  $3,700. 
A)  $700. 
B)  $750. 
C)  $2,250. 
D)  $3,700.

Question 14

An increase in the price of plastic raises the cost of manufacturing VCRs. As a result, the market changes to a new equilibrium because of

Accepted Answer

A)  a surplus of VCRs. 
B)  an increase in the demand for VCRs. 
C)  a leftward shift in the demand curve for VCRs. 
D)  a leftward shift in the supply curve for VCRs. 
A)  a surplus of VCRs. 
B)  an increase in the demand for VCRs. 
C)  a leftward shift in the demand curve for VCRs. 
D)  a leftward shift in the supply curve for VCRs.

Question 15

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Accepted Answer

A)  Both price and quantity will increase. 
B)  Both price and quantity will decrease. 
C)  Price will increase and quantity decrease. 
D)  Price will decrease and quantity increase. 
E)  Nothing. 
A)  Both price and quantity will increase. 
B)  Both price and quantity will decrease. 
C)  Price will increase and quantity decrease. 
D)  Price will decrease and quantity increase. 
E)  Nothing.

Question 16

Which of the following is true of profits and losses?

Accepted Answer

A)  Profits direct entrepreneurs toward production of goods that are highly valued relative to their cost, while losses direct them away from wealth-reducing activities. 
B)  Profits indicate that the firm is charging prices that are too high, while losses indicate that the firm needs to raise its prices. 
C)  Profits indicate that the consumer is getting a bad deal, while losses indicate that the consumer values the product highly relative to its cost. 
D)  Profits indicate that the suppliers of resources are underpaid, while losses indicate they are overpaid. 
A)  Profits direct entrepreneurs toward production of goods that are highly valued relative to their cost, while losses direct them away from wealth-reducing activities. 
B)  Profits indicate that the firm is charging prices that are too high, while losses indicate that the firm needs to raise its prices. 
C)  Profits indicate that the consumer is getting a bad deal, while losses indicate that the consumer values the product highly relative to its cost. 
D)  Profits indicate that the suppliers of resources are underpaid, while losses indicate they are overpaid.

Question 17

If price rises, what happens to the quantity demanded for a product?

Accepted Answer

A)  It increases. 
B)  It decreases. 
C)  It does not change. 
D)  Uncertain--economic theory has no answer to this question. 
A)  It increases. 
B)  It decreases. 
C)  It does not change. 
D)  Uncertain--economic theory has no answer to this question.

Question 18

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 19

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 20

Assume that supply increases greatly and demand increases slightly. Which of the following will happen?

Accepted Answer

A)  Equilibrium price will fall and equilibrium quantity will rise. 
B)  Equilibrium price will rise and equilibrium quantity will fall. 
C)  Equilibrium price will rise and equilibrium quantity will rise. 
D)  Equilibrium price will fall and equilibrium quantity will fall. 
E)  Neither equilibrium price nor equilibrium quantity will change. 
A)  Equilibrium price will fall and equilibrium quantity will rise. 
B)  Equilibrium price will rise and equilibrium quantity will fall. 
C)  Equilibrium price will rise and equilibrium quantity will rise. 
D)  Equilibrium price will fall and equilibrium quantity will fall. 
E)  Neither equilibrium price nor equilibrium quantity will change.

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

Figure 3-12 In Figure 3-12, suppose D ₁ and S ₁ indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D ₁ to D ₂?

How will consumers generally react to an increase in the price of butter?

Figure 3-18 Refer to Figure 3-18. Which area represents consumer surplus at a price of P ₁?

Use the figure below to answer the following question(s). Figure 3-3 In Figure 3-3, if the initial demand for margarine were D ₁, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as

Graphically, what impact would an increase in the price of jet fuel have on the market for air travel?

Which of the following most accurately describes the invisible hand concept?

When economists say the quantity demanded of a product has increased, they mean the

(I) The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good.

If consumer incomes go up and you are analyzing the market for Harley Davidson motorcycles, the effect on the demand for motorcycles, ceteris paribus, will be

The demand schedule for a good

Table 3-2 Refer to Table 3-2. If the market price is $1,000, the producer surplus in the market is

An increase in the price of plastic raises the cost of manufacturing VCRs. As a result, the market changes to a new equilibrium because of

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Which of the following is true of profits and losses?

If price rises, what happens to the quantity demanded for a product?

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

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

Assume that supply increases greatly and demand increases slightly. Which of the following will happen?

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

Applying the Basics: Special Topics in Economics

Filters

Exam 3: Demand, Supply, and the Market Process

According to Adam Smith's invisible hand principle, productive actions that promote the general welfare of society will be undertaken when

If there is an increase in both the supply and demand for a good, which of the following will definitely occur?

Figure 3-12 In Figure 3-12, suppose D 1 and S 1 indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D 1 to D 2?

How will consumers generally react to an increase in the price of butter?

Figure 3-18 Refer to Figure 3-18. Which area represents consumer surplus at a price of P 1?

Use the figure below to answer the following question(s). Figure 3-3 In Figure 3-3, if the initial demand for margarine were D 1, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as

Graphically, what impact would an increase in the price of jet fuel have on the market for air travel?

Which of the following most accurately describes the invisible hand concept?

When economists say the quantity demanded of a product has increased, they mean the

(I) The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II) The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good.

If consumer incomes go up and you are analyzing the market for Harley Davidson motorcycles, the effect on the demand for motorcycles, ceteris paribus, will be

The demand schedule for a good

Table 3-2 Refer to Table 3-2. If the market price is $1,000, the producer surplus in the market is

An increase in the price of plastic raises the cost of manufacturing VCRs. As a result, the market changes to a new equilibrium because of

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Which of the following is true of profits and losses?

If price rises, what happens to the quantity demanded for a product?

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

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

Assume that supply increases greatly and demand increases slightly. Which of the following will happen?

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

Applying the Basics: Special Topics in Economics

Filters

Figure 3-12 In Figure 3-12, suppose D ₁ and S ₁ indicate initial conditions in the market for ice cream. Which of the following changes would tend to shift this market from D ₁ to D ₂?

Figure 3-18 Refer to Figure 3-18. Which area represents consumer surplus at a price of P ₁?

Use the figure below to answer the following question(s). Figure 3-3 In Figure 3-3, if the initial demand for margarine were D ₁, the impact of an increase in the price of margarine from $0.35 to $0.40 per pound on consumer purchases would be illustrated as