Question 1

Imagine a free market in equilibrium. After a sudden increase in demand (but before the price can adjust), the market experiences:

Accepted Answer

A)  a shortage. 
B)  a surplus. 
C)  no change. 
D)  a new equilibrium. 
A)  a shortage. 
B)  a surplus. 
C)  no change. 
D)  a new equilibrium.

Question 2

Figure: Price and Quantity 4   If the figure depicts a market for an inferior good, which of the following statements describes what could have happened?

Accepted Answer

A)  Consumer income increased, causing an increase in demand and an increase in supply. 
B)  Consumer income decreased, causing an increase in demand and an increase in quantity supplied. 
C)  The price of a substitute good increased, causing an increase in quantity demanded and an increase in quantity supplied. 
D)  Consumers expect lower future prices, causing an increase in demand and an increase in supply. 
A)  Consumer income increased, causing an increase in demand and an increase in supply. 
B)  Consumer income decreased, causing an increase in demand and an increase in quantity supplied. 
C)  The price of a substitute good increased, causing an increase in quantity demanded and an increase in quantity supplied. 
D)  Consumers expect lower future prices, causing an increase in demand and an increase in supply.

Question 3

Use the following to answer questions:
Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If the figures represent the market for a popular soda, which figure shows the effect of an increase in the price of a competing energy drink?

Accepted Answer

A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D 
A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D

Question 4

A shortage of a good occurs when:

Accepted Answer

A)  the quantity supplied equals the quantity demanded. 
B)  the quantity supplied is greater than the quantity demanded. 
C)  the quantity supplied is less than the quantity demanded. 
D)  supply does not exist. 
A)  the quantity supplied equals the quantity demanded. 
B)  the quantity supplied is greater than the quantity demanded. 
C)  the quantity supplied is less than the quantity demanded. 
D)  supply does not exist.

Question 5

Economic growth in China and India has reduced the world supply of oil.

Accepted Answer

A) True 
 B)False

Question 6

Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?

Accepted Answer

A)  This is evidence against the supply and demand model. 
B)  Demand has increased by more than supply increased, raising prices. 
C)  Prices always rise when supply shifts down and to the right. 
D)  Oil is one of the few commodities that do not follow the supply and demand model. 
A)  This is evidence against the supply and demand model. 
B)  Demand has increased by more than supply increased, raising prices. 
C)  Prices always rise when supply shifts down and to the right. 
D)  Oil is one of the few commodities that do not follow the supply and demand model.

Question 7

An increase in the price of corn will lead to a decrease in the DEMAND for corn.

Accepted Answer

A) True 
 B)False

Question 8

When supply decreases there is a ______ at the old equilibrium price, which puts ______ pressure on price until the market reaches the new equilibrium.

Accepted Answer

A)  surplus; downward 
B)  surplus; upward 
C)  shortage; upward 
D)  shortage; downward 
A)  surplus; downward 
B)  surplus; upward 
C)  shortage; upward 
D)  shortage; downward

Question 9

Use the following to answer questions:
Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If these figures represent the market for asparagus, which figure shows the effect of a new disease-resistant asparagus seed?

Accepted Answer

A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D 
A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D

Question 10

In a free market, gains from trade are maximized when people act in their own self-interest.

Accepted Answer

A) True 
 B)False

Question 11

Use the following to answer questions:
Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

Accepted Answer

A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D 
A)  Figure A 
B)  Figure B 
C)  Figure C 
D)  Figure D

Question 12

Figure: Demand Shift   In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that:

Accepted Answer

A)  demand increased, which caused an increase in supply. 
B)  quantity demanded increased, which caused an increase in supply. 
C)  demand increased, which caused an increase in quantity supplied. 
D)  quantity demanded increased, which caused an increase in quantity supplied. 
A)  demand increased, which caused an increase in supply. 
B)  quantity demanded increased, which caused an increase in supply. 
C)  demand increased, which caused an increase in quantity supplied. 
D)  quantity demanded increased, which caused an increase in quantity supplied.

Question 13

Use the following to answer questions:
Figure: Market Equilibrium  
-(Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n):

Accepted Answer

A)  excess supply of 2 units. 
B)  excess demand of 4 units. 
C)  surplus of 4 units. 
D)  shortage of 6 units. 
A)  excess supply of 2 units. 
B)  excess demand of 4 units. 
C)  surplus of 4 units. 
D)  shortage of 6 units.

Question 14

How did the spread of the Internet affect the market for news (regardless of source)?

Accepted Answer

A)  Demand increased, causing the price to rise. 
B)  Demand decreased, causing the price to fall. 
C)  Supply decreased, causing the price to rise. 
D)  Supply increased, causing the price to fall. 
A)  Demand increased, causing the price to rise. 
B)  Demand decreased, causing the price to fall. 
C)  Supply decreased, causing the price to rise. 
D)  Supply increased, causing the price to fall.

Question 15

If sellers want to sell more products than buyers are willing to purchase, we know that:

Accepted Answer

A)  the current price is less than the equilibrium price. 
B)  quantity demanded exceeds quantity supplied. 
C)  the current price is greater than the equilibrium price. 
D)  the demand curve will likely increase. 
A)  the current price is less than the equilibrium price. 
B)  quantity demanded exceeds quantity supplied. 
C)  the current price is greater than the equilibrium price. 
D)  the demand curve will likely increase.

Question 16

Use the following to answer questions:
Figure: Price and Quantity 2  
-(Figure: Price and Quantity 2) At a cost of $20 per unit in the diagram, the demanders whose wants are satisfied are represented by the section of the demand curve between a price of:

Accepted Answer

A)  $100 and $80. 
B)  $100 and $50. 
C)  $0 and $100. 
D)  $20 and $80. 
A)  $100 and $80. 
B)  $100 and $50. 
C)  $0 and $100. 
D)  $20 and $80.

Question 17

When the price of a good decreases:

Accepted Answer

A)  the quantity demanded increases. 
B)  demand increases. 
C)  the quantity supplied increases. 
D)  supply increases. 
A)  the quantity demanded increases. 
B)  demand increases. 
C)  the quantity supplied increases. 
D)  supply increases.

Question 18

An increase in quantity demanded is a shift in the entire demand curve.

Accepted Answer

A) True 
 B)False

Question 19

In a free market equilibrium, prices and quantities are uniquely:

Accepted Answer

A)  stable. 
B)  unstable. 
C)  moving in the "right" direction. 
D)  moving in the "wrong" direction. 
A)  stable. 
B)  unstable. 
C)  moving in the "right" direction. 
D)  moving in the "wrong" direction.

Question 20

Why is the world unlikely to ever literally run out of oil?

Accepted Answer

A)  There is an unlimited supply of oil. 
B)  As the cheap-to-produce oil gets used up, the price of oil will rise, encouraging conservation and production using more expensive techniques. 
C)  The demand for oil is not very high. 
D)  As the demand for oil increases, the quantity supplied increases as well. 
A)  There is an unlimited supply of oil. 
B)  As the cheap-to-produce oil gets used up, the price of oil will rise, encouraging conservation and production using more expensive techniques. 
C)  The demand for oil is not very high. 
D)  As the demand for oil increases, the quantity supplied increases as well.

Exam 4: Equilibrium

Imagine a free market in equilibrium. After a sudden increase in demand (but before the price can adjust), the market experiences:

Figure: Price and Quantity 4 If the figure depicts a market for an inferior good, which of the following statements describes what could have happened?

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If the figures represent the market for a popular soda, which figure shows the effect of an increase in the price of a competing energy drink?

A shortage of a good occurs when:

Economic growth in China and India has reduced the world supply of oil.

Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?

An increase in the price of corn will lead to a decrease in the DEMAND for corn.

When supply decreases there is a ______ at the old equilibrium price, which puts ______ pressure on price until the market reaches the new equilibrium.

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If these figures represent the market for asparagus, which figure shows the effect of a new disease-resistant asparagus seed?

In a free market, gains from trade are maximized when people act in their own self-interest.

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

Figure: Demand Shift In the figure, the demand curve shifted from D0 to D1. To describe this movement, we would say that:

Use the following to answer questions: Figure: Market Equilibrium -(Figure: Market Equilibrium) Refer to the figure. At a price of $1, the market is characterized by a(n):

How did the spread of the Internet affect the market for news (regardless of source)?

If sellers want to sell more products than buyers are willing to purchase, we know that:

Use the following to answer questions: Figure: Price and Quantity 2 -(Figure: Price and Quantity 2) At a cost of $20 per unit in the diagram, the demanders whose wants are satisfied are represented by the section of the demand curve between a price of:

When the price of a good decreases:

An increase in quantity demanded is a shift in the entire demand curve.

In a free market equilibrium, prices and quantities are uniquely:

Why is the world unlikely to ever literally run out of oil?

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

When supply decreases there is a at the old equilibrium price, which puts pressure on price until the market reaches the new equilibrium.

Figure: Demand Shift In the figure, the demand curve shifted from D₀ to D₁. To describe this movement, we would say that: