Question 1

Profits and losses play an important role in helping

Accepted Answer

A) to signal to government which businesses are suffering losses so that they can be subsidized. 
B) consumers decide which products they value the most by looking at each firm's profit. 
C) to allocate scarce resources in a manner that maximizes the value created to society. 
D) ensure that the total profits in the economy exactly equal the total losses. 
A) to signal to government which businesses are suffering losses so that they can be subsidized. 
B) consumers decide which products they value the most by looking at each firm's profit. 
C) to allocate scarce resources in a manner that maximizes the value created to society. 
D) ensure that the total profits in the economy exactly equal the total losses.

Question 2

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 3

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

Accepted Answer

A) The demand for beef would increase,increasing beef prices. 
B) The demand for beef would decrease,decreasing beef prices. 
C) The supply of beef would increase,decreasing beef prices. 
D) The supply of beef would decrease,increasing beef prices. 
A) The demand for beef would increase,increasing beef prices. 
B) The demand for beef would decrease,decreasing beef prices. 
C) The supply of beef would increase,decreasing beef prices. 
D) The supply of beef would decrease,increasing beef prices.

Question 4

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 5

A new hormone will increase the amount of milk each cow produces.If this hormone is adopted by many dairies,what will be the effect on the milk market?

Accepted Answer

A) An increase in supply,higher equilibrium price,and lower equilibrium quantity. 
B) A decrease in supply,lower equilibrium price,and lower equilibrium quantity. 
C) An increase in supply,lower equilibrium price,and higher equilibrium quantity. 
D) An increase in supply,higher equilibrium price,and higher equilibrium quantity. 
E) A decrease in supply,lower equilibrium price,and higher equilibrium quantity. 
A) An increase in supply,higher equilibrium price,and lower equilibrium quantity. 
B) A decrease in supply,lower equilibrium price,and lower equilibrium quantity. 
C) An increase in supply,lower equilibrium price,and higher equilibrium quantity. 
D) An increase in supply,higher equilibrium price,and higher equilibrium quantity. 
E) A decrease in supply,lower equilibrium price,and higher equilibrium quantity.

Question 6

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 7

If the supply of a good is relatively elastic,this means that the quantity supplied of the good is

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) none of the above. 
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) none of the above.

Question 8

An increase in the demand for a good means that

Accepted Answer

A) the demand curve has shifted to the left. 
B) the good's price has fallen and,as a result,consumers are buying more of the good. 
C) the good has become scarce. 
D) consumers are willing to purchase more of the good at each possible price. 
A) the demand curve has shifted to the left. 
B) the good's price has fallen and,as a result,consumers are buying more of the good. 
C) the good has become scarce. 
D) consumers are willing to purchase more of the good at each possible price.

Question 9

Just before Valentine's Day,the price of roses increases dramatically.This is because

Accepted Answer

A) self-interested individuals try to charge more for a good than consumers are willing to pay. 
B) demand increases while the supply of roses remains relatively constant. 
C) the supply curve of roses is highly elastic. 
D) the demand for roses is relatively inelastic most of the year,but becomes more elastic as demand increases. 
A) self-interested individuals try to charge more for a good than consumers are willing to pay. 
B) demand increases while the supply of roses remains relatively constant. 
C) the supply curve of roses is highly elastic. 
D) the demand for roses is relatively inelastic most of the year,but becomes more elastic as demand increases.

Question 10

Figure 3-19
  
-Refer to Figure 3-19.If the government mandated a price increase from Pₑ to a higher price,then

Accepted Answer

A) total surplus would decrease. 
B) consumer surplus would increase. 
C) total surplus would increase,since producer surplus would increase. 
D) total surplus would remain unchanged. 
A) total surplus would decrease. 
B) consumer surplus would increase. 
C) total surplus would increase,since producer surplus would increase. 
D) total surplus would remain unchanged.

Question 11

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 12

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 13

If you were a government official that wanted to raise the equilibrium price of milk,which of the following actions would you take?

Accepted Answer

A) Take milk from government storage and sell it. 
B) Encourage farmers to produce more milk. 
C) Subsidize purchases of dairy equipment. 
D) Encourage farmers to produce less milk. 
A) Take milk from government storage and sell it. 
B) Encourage farmers to produce more milk. 
C) Subsidize purchases of dairy equipment. 
D) Encourage farmers to produce less milk.

Question 14

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

Accepted Answer

A) expenditures the firm undertakes for research and development. 
B) the opportunity cost of assets and financial resources owned by the firm. 
C) the direct monetary cost of purchasing resources. 
D) the firm's revenue as a cost. 
A) expenditures the firm undertakes for research and development. 
B) the opportunity cost of assets and financial resources owned by the firm. 
C) the direct monetary cost of purchasing resources. 
D) the firm's revenue as a cost.

Question 15

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

Accepted Answer

A) price elasticity of demand. 
B) consumer surplus. 
C) the substitution effect. 
D) income elasticity of demand. 
A) price elasticity of demand. 
B) consumer surplus. 
C) the substitution effect. 
D) income elasticity of demand.

Question 16

A hurricane damaged much of the housing in Miami.Shortly thereafter,the price of plywood rose significantly.The events suggest that

Accepted Answer

A) a decrease in the supply of plywood caused the price of plywood to rise. 
B) an increase in the supply of plywood caused the price of plywood to rise. 
C) a decrease in the demand for plywood caused the price of plywood to rise. 
D) an increase in the demand for plywood caused the price of plywood to rise. 
A) a decrease in the supply of plywood caused the price of plywood to rise. 
B) an increase in the supply of plywood caused the price of plywood to rise. 
C) a decrease in the demand for plywood caused the price of plywood to rise. 
D) an increase in the demand for plywood caused the price of plywood to rise.

Question 17

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

Accepted Answer

A) $480. 
B) $640. 
C) $1,120. 
D) $1,280. 
A) $480. 
B) $640. 
C) $1,120. 
D) $1,280.

Question 18

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car,this indicates that

Accepted Answer

A) Harry is an irrational consumer. 
B) The seller earned a $10,000 profit on the sale of the car. 
C) Harry reaped $10,000 of consumer surplus from the transaction. 
D) The seller received $10,000 worth of producer surplus on the transaction. 
A) Harry is an irrational consumer. 
B) The seller earned a $10,000 profit on the sale of the car. 
C) Harry reaped $10,000 of consumer surplus from the transaction. 
D) The seller received $10,000 worth of producer surplus on the transaction.

Question 19

John advertises his used car for $3,000 in the newspaper.He would be willing to sell his used car for as low as $2,000.He is offered $2,600 for it from a buyer and accepts it.In this trade,John receives

Accepted Answer

A) producer surplus of $3,000. 
B) producer surplus of $2,600. 
C) producer surplus of $600. 
D) consumer surplus of $400. 
A) producer surplus of $3,000. 
B) producer surplus of $2,600. 
C) producer surplus of $600. 
D) consumer surplus of $400.

Question 20

Figure 3-12
  
-In Figure 3-12,suppose D₁ and S₁ indicate initial conditions in the market for ice cream.Which of the following changes would tend to shift this market from D₁ to D₂?

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

Exam 3: Asupply,demand,and the Market Process

Profits and losses play an important role in helping

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

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

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

A new hormone will increase the amount of milk each cow produces.If this hormone is adopted by many dairies,what will be the effect on the milk market?

Two goods are considered substitutes if

If the supply of a good is relatively elastic,this means that the quantity supplied of the good is

An increase in the demand for a good means that

Just before Valentine's Day,the price of roses increases dramatically.This is because

Figure 3-19 -Refer to Figure 3-19.If the government mandated a price increase from Pₑ to a higher price,then

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

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

If you were a government official that wanted to raise the equilibrium price of milk,which of the following actions would you take?

The opportunity cost of production differs from an accounting definition of a firm's costs because it includes

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

A hurricane damaged much of the housing in Miami.Shortly thereafter,the price of plywood rose significantly.The events suggest that

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

If Harry only pays $25,000 to purchase a new car even though he would have been willing to pay as much as $35,000 for the car,this indicates that

John advertises his used car for $3,000 in the newspaper.He would be willing to sell his used car for as low as $2,000.He is offered $2,600 for it from a buyer and accepts it.In this trade,John receives

Figure 3-12 -In Figure 3-12,suppose D₁ and S₁ indicate initial conditions in the market for ice cream.Which of the following changes would tend to shift this market from D₁ to D₂?

The Economic Approach

Asome Tools of the Economist

Asupply and Demand: Applications and Extensions

Difficult Cases for the Market and the Role of Government

The Economics of Collective Decision-Making

Ataking the Nations Economic Pulse

Economic Fluctuations, unemployment, and Inflation

Aan Introduction to Basic Macroeconomic Markets

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

Fiscal Policy: the Keynesian View and Historical Perspective

Fiscal Policy, incentives, and Secondary Effects

Amoney 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

Consumer Choice and Elasticity

Acosts and the Supply of Goods

Aprice Takers and the Competitive Process

Price-Searcher Markets With Low Entry Barriers

Aprice-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

Government Spending and Taxation

The Economics of Social Security

The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity

Great Debates in Economics: Keynes Versus Hayek

The Crisis of 2008: Causes and Lessons for the Future

Lessons From the Great Depression

Lessons From Japan and Canada

The Federal Budget and the National Debt

The Economics of Healthcare

Education: Problems and Performance

Earnings Differences Between Men and Women

Do Labor Unions Increase the Wages of Workers

The Question of Resource Exhaustion

Difficult Environmental Cases and the Role of Government

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