Exam 3: Demand, Supply, and the Market Process

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

Figure 3-15 Refer to Figure 3-15. Which area represents producer surplus when the price is P ₁?

Two students are walking by a department store window that has on display a $400 dress. The English major declares, "I want that dress but can't afford it." The economics major replies, "No, you don't." Explain the logic of this reply.

The price of a good will tend to rise when

Figure 3-20 Refer to Figure 3-20. At the equilibrium price, consumer surplus is

The law of demand refers to the

Use the figure below to answer the following question(s). Figure 3-14 Refer to Figure 3-14. The gasoline market was initially in equilibrium at point e. Other things constant, a decrease in the price of crude oil, an important ingredient used to produce gasoline, would likely move the equilibrium in this market toward point

If air travel and bus travel are substitutes,

Use the figure below to answer the following question(s). Figure 3-13 Refer to Figure 3-13. The market for margarine was initially in equilibrium at point e. Other things constant, a decrease in the price of butter, a close substitute for margarine, would likely move the equilibrium in this market toward point

Figure 3-15 Refer to Figure 3-15. Which area represents producer surplus when the price is P ₁?

Which of the following would most likely cause the current demand for DVD players to fall?

A decrease in the expected future price of a good will cause the current demand for the good to

When an unusually bad frost reduces the apple crop in Washington state, the price of canned apple juice may rise immediately in supermarkets, even though the juice on the shelves was made from last year's plentiful crop. The invisible hand theory tells us that the profit-seeking merchants who raise their prices in such situations

When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact that

An increase in supply will cause

Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation?

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?

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?

Which of the following is necessary for the invisible hand of market prices to work properly?

A decrease in the supply of a good will