Question 1

Price is important in a market economy because it

Accepted Answer

A)  eliminates imbalances between supply and demand. 
B)  serves as the rationing mechanism for the limited supplies of goods and services. 
C)  coordinates the choices of consumers and producers and brings them into harmony. 
D)  is all of the above. 
A)  eliminates imbalances between supply and demand. 
B)  serves as the rationing mechanism for the limited supplies of goods and services. 
C)  coordinates the choices of consumers and producers and brings them into harmony. 
D)  is all of the above.

Question 2

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 3

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

Accepted Answer

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

Question 4

Which of the following events would increase producer surplus?

Accepted Answer

A)  Sellers' costs stay the same and the price of the good increases. 
B)  Sellers' costs increase and the price of the good stays the same. 
C)  Sellers' costs increase and the price of the good decreases. 
D)  All of the above are correct. 
A)  Sellers' costs stay the same and the price of the good increases. 
B)  Sellers' costs increase and the price of the good stays the same. 
C)  Sellers' costs increase and the price of the good decreases. 
D)  All of the above are correct.

Question 5

Figure 3-15   Refer to Figure 3-15. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

Accepted Answer

A)  BCE 
B)  ACF 
C)  DEF 
D)  ABED 
A)  BCE 
B)  ACF 
C)  DEF 
D)  ABED

Question 6

Which of the following does the law of demand specifically imply?

Accepted Answer

A)  If the product price increases, quantity demanded will decrease. 
B)  If consumer income increases, quantity demanded will increase. 
C)  If the product price increases, quantity demanded will increase. 
D)  If consumer income increases, quantity demanded will decrease. 
E)  If supply increases, demand will increase. 
A)  If the product price increases, quantity demanded will decrease. 
B)  If consumer income increases, quantity demanded will increase. 
C)  If the product price increases, quantity demanded will increase. 
D)  If consumer income increases, quantity demanded will decrease. 
E)  If supply increases, demand will increase.

Question 7

Figure 3-17   Refer to Figure 3-17. Area C represents

Accepted Answer

A)  the decrease in consumer surplus that results from a downward-sloping demand curve. 
B)  consumer surplus to new consumers who enter the market when the price falls from P2 to P1. 
C)  the increase in producer surplus when quantity sold increases from Q2 to Q1. 
D)  the decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2. 
A)  the decrease in consumer surplus that results from a downward-sloping demand curve. 
B)  consumer surplus to new consumers who enter the market when the price falls from P2 to P1. 
C)  the increase in producer surplus when quantity sold increases from Q2 to Q1. 
D)  the decrease in consumer surplus to each consumer in the market when the price increases from P1 to P2.

Question 8

Figure 3-21   Refer to Figure 3-21. At the quantity Q3,

Accepted Answer

A)  the market is in equilibrium. 
B)  consumer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  the value to buyers is less than the cost to sellers. 
A)  the market is in equilibrium. 
B)  consumer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  the value to buyers is less than the cost to sellers.

Question 9

A recent editorial in a local newspaper argues, "Consumers need to know more about products than just their price. They need to know how these prices are determined, who owns the businesses, and the wages of the workers." Is the editorial writer correct? Why or why not?

Accepted Answer

What is missing from the editorial is a

Question 10

In which statement(s) are "demand" and "quantity demanded" used correctly?
(I)  "An increase in the price of tea will reduce the quantity demanded of tea."
(II)  "An increase in the price of tea will reduce the demand for sugar used in tea."

Accepted Answer

A)  in both statements I and II 
B)  in statement I only 
C)  in statement II only 
D)  in neither statements I nor II 
A)  in both statements I and II 
B)  in statement I only 
C)  in statement II only 
D)  in neither statements I nor II

Question 11

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 12

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 13

When economists say the quantity demanded of a product has decreased, 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 14

Which of the following is the most likely effect of higher chicken prices on the price and quantity purchased of beef, a substitute product?

Accepted Answer

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

Question 15

If the number of consumers in a market increases, the market demand curve will

Accepted Answer

A)  decrease, which is a shift to the left of the demand curve. 
B)  increase, which is a shift to the right of the demand curve. 
C)  not shift, but rather this will just cause a movement along the demand curve. 
D)  do none of the above. 
A)  decrease, which is a shift to the left of the demand curve. 
B)  increase, which is a shift to the right of the demand curve. 
C)  not shift, but rather this will just cause a movement along the demand curve. 
D)  do none of the above.

Question 16

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

Accepted Answer

A)  Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand. 
B)  Supply and demand simultaneously increased and the shift in supply was less than the shift in demand. 
C)  Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand. 
D)  Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand. 
A)  Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand. 
B)  Supply and demand simultaneously increased and the shift in supply was less than the shift in demand. 
C)  Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand. 
D)  Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

Question 17

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence?

Accepted Answer

A)  Gas station owners anticipate consumers will buy more gasoline as gasoline prices increase. 
B)  Gas station owners are attempting to repeal the laws of supply and demand. 
C)  Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost. 
D)  A decline in consumer demand generally causes gas station owners to raise their prices. 
A)  Gas station owners anticipate consumers will buy more gasoline as gasoline prices increase. 
B)  Gas station owners are attempting to repeal the laws of supply and demand. 
C)  Gas station owners anticipate higher replacement costs for their supply of gasoline and, therefore, raise their prices in response to this higher expected cost. 
D)  A decline in consumer demand generally causes gas station owners to raise their prices.

Question 18

If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by

Accepted Answer

A)  an increase in the supply of the good. 
B)  an increase in the demand for the good. 
C)  a decrease in the demand for the good. 
D)  a decrease in the supply of the good. 
A)  an increase in the supply of the good. 
B)  an increase in the demand for the good. 
C)  a decrease in the demand for the good. 
D)  a decrease in the supply of the good.

Question 19

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

Accepted Answer

A)  are essentially correct. 
B)  contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. 
C)  contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. 
D)  contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars. 
A)  are essentially correct. 
B)  contain one error; the lower gasoline prices would cause an increase in the quantity demanded of gasoline, not an increase in demand. 
C)  contain one error; the lower gasoline prices would increase the quantity demanded of large cars, not the demand. 
D)  contain two errors; the lower gasoline prices would cause the quantity of gasoline demanded (rather than the demand) to increase, and the lower gasoline price would cause an increase in quantity demanded (rather than the demand) for large cars.

Question 20

When economists say that market equilibrium is consistent with economic efficiency, they mean

Accepted Answer

A)  the total gains from trade (the combined area of producer and consumer surplus) are smaller than potentially could be the case at a different price and quantity. 
B)  all units creating more benefit than cost have been produced. 
C)  some units have been produced that cost more than the benefits they create. 
D)  consumers and producers have made decisions without properly taking into account the market price. 
A)  the total gains from trade (the combined area of producer and consumer surplus) are smaller than potentially could be the case at a different price and quantity. 
B)  all units creating more benefit than cost have been produced. 
C)  some units have been produced that cost more than the benefits they create. 
D)  consumers and producers have made decisions without properly taking into account the market price.

Price is important in a market economy because it

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,

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

Which of the following events would increase producer surplus?

Figure 3-15 Refer to Figure 3-15. When the price rises from P₁ to P₂, which area represents the increase in producer surplus to existing producers?

Which of the following does the law of demand specifically imply?

Figure 3-17 Refer to Figure 3-17. Area C represents

Figure 3-21 Refer to Figure 3-21. At the quantity Q₃,

A recent editorial in a local newspaper argues, "Consumers need to know more about products than just their price. They need to know how these prices are determined, who owns the businesses, and the wages of the workers." Is the editorial writer correct? Why or why not?

In which statement(s) are "demand" and "quantity demanded" used correctly? (I) "An increase in the price of tea will reduce the quantity demanded of tea." (II) "An increase in the price of tea will reduce the demand for sugar used in tea."

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.

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

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

Which of the following is the most likely effect of higher chicken prices on the price and quantity purchased of beef, a substitute product?

If the number of consumers in a market increases, the market demand curve will

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

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence?

If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

When economists say that market equilibrium is consistent with economic efficiency, they mean

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 3: Demand, Supply, and the Market Process

Price is important in a market economy because it

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,

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

Which of the following events would increase producer surplus?

Figure 3-15 Refer to Figure 3-15. When the price rises from P1 to P2, which area represents the increase in producer surplus to existing producers?

Which of the following does the law of demand specifically imply?

Figure 3-17 Refer to Figure 3-17. Area C represents

Figure 3-21 Refer to Figure 3-21. At the quantity Q3,

A recent editorial in a local newspaper argues, "Consumers need to know more about products than just their price. They need to know how these prices are determined, who owns the businesses, and the wages of the workers." Is the editorial writer correct? Why or why not?

In which statement(s) are "demand" and "quantity demanded" used correctly? (I) "An increase in the price of tea will reduce the quantity demanded of tea." (II) "An increase in the price of tea will reduce the demand for sugar used in tea."

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.

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

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

Which of the following is the most likely effect of higher chicken prices on the price and quantity purchased of beef, a substitute product?

If the number of consumers in a market increases, the market demand curve will

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

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence?

If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by

"A reduction in gasoline prices caused the demand for gasoline to increase. The lower gas prices also led to an increase in demand for large cars, causing their prices to rise." These statements

When economists say that market equilibrium is consistent with economic efficiency, they mean

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

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

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

Figure 3-15 Refer to Figure 3-15. When the price rises from P₁ to P₂, which area represents the increase in producer surplus to existing producers?

Figure 3-21 Refer to Figure 3-21. At the quantity Q₃,