Question 1

Vernon Smith, Nobel Prize-winning economist, revolutionized economics by testing the model of demand and supply in experimental settings.

Accepted Answer

A) True 
 B)False

Question 2

Free markets maximize consumer plus producer surplus regardless of the level of competition.

Accepted Answer

A) True 
 B)False

Question 3

What effect did the 1997 East Asian recession in countries such as South Korea, Indonesia, and Thailand have on the oil market?

Accepted Answer

A)  The recession decreased income, made the world more dependent on oil, and increased oil demand and prices. 
B)  The recession led to high unemployment, and reduced the demand for driving and the supply of oil. 
C)  The recession decreased income, and reduced the demand for oil and oil prices. 
D)  The recession led to high unemployment, increased demand for Sunday driving, and higher oil prices. 
A)  The recession decreased income, made the world more dependent on oil, and increased oil demand and prices. 
B)  The recession led to high unemployment, and reduced the demand for driving and the supply of oil. 
C)  The recession decreased income, and reduced the demand for oil and oil prices. 
D)  The recession led to high unemployment, increased demand for Sunday driving, and higher oil prices.

Question 4

When there is a surplus of a good:

Accepted Answer

A)  sellers will lower the price in order to increase quantity demanded. 
B)  sellers will raise the price in order to decrease quantity demanded. 
C)  sellers will compete with buyers. 
D)  this is an indication the buyers do not value the good. 
A)  sellers will lower the price in order to increase quantity demanded. 
B)  sellers will raise the price in order to decrease quantity demanded. 
C)  sellers will compete with buyers. 
D)  this is an indication the buyers do not value the good.

Question 5

Which statement most accurately explains the upward trend in the market price of oil since around the year 2000?

Accepted Answer

A)  The supply of oil has increased faster than the demand for oil has increased. 
B)  Both the demand for and the supply of oil has decreased. 
C)  The demand for oil has increased faster than the supply of oil has increased. 
D)  The demand for oil has decreased while the supply of oil has increased. 
A)  The supply of oil has increased faster than the demand for oil has increased. 
B)  Both the demand for and the supply of oil has decreased. 
C)  The demand for oil has increased faster than the supply of oil has increased. 
D)  The demand for oil has decreased while the supply of oil has increased.

Question 6

A shortage occurs when:

Accepted Answer

A)  the price of a good is too high. 
B)  a market is at equilibrium. 
C)  the quantity supplied is zero. 
D)  the quantity demanded is greater than the quantity supplied. 
A)  the price of a good is too high. 
B)  a market is at equilibrium. 
C)  the quantity supplied is zero. 
D)  the quantity demanded is greater than the quantity supplied.

Question 7

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______.

Accepted Answer

A)  equal; remain unchanged 
B)  be less than; rise 
C)  exceed; rise 
D)  decrease; fall 
A)  equal; remain unchanged 
B)  be less than; rise 
C)  exceed; rise 
D)  decrease; fall

Question 8

How did the spread of the Internet affect the market for newspapers?

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 9

What is the difference between a "change in demand" and a "change in quantity demanded"? Graph your answer.

Accepted Answer

A change in demand refers to a shift in

Question 10

In order for the gains of trade to be maximized, everyone whose willingness to pay for the good is greater than zero must receive it.

Accepted Answer

A) True 
 B)False

Question 11

Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box but only one box is available between these two buyers, then gains from trade will be maximized when:

Accepted Answer

A)  Tim buys the treats. 
B)  John buys the treats. 
C)  either buys the treats, since they both value them more than the market price. 
D)  consumer surplus is equal to $3. 
A)  Tim buys the treats. 
B)  John buys the treats. 
C)  either buys the treats, since they both value them more than the market price. 
D)  consumer surplus is equal to $3.

Question 12

After the recent financial crisis, new rules and regulations regarding mortgage lending made it more difficult for many families to purchase a home. Draw a supply and demand graph illustrating the impact of these new, harsher, mortgage-lending laws on the rental housing market. Predict what will happen to the price of rental housing as a result of these new laws.

Accepted Answer

The more stringent mortgage lending laws

Question 13

What will happen in the market for cotton as a result of a severe drought?

Accepted Answer

A)  The demand for cotton will decrease, causing the equilibrium price to fall and equilibrium quantity to fall. 
B)  The demand for cotton will increase, causing the equilibrium price to rise and equilibrium quantity to rise. 
C)  The supply of cotton will decrease, causing the equilibrium price to fall and equilibrium quantity to fall. 
D)  The supply of cotton will decrease, causing the equilibrium price to rise and equilibrium quantity to fall. 
A)  The demand for cotton will decrease, causing the equilibrium price to fall and equilibrium quantity to fall. 
B)  The demand for cotton will increase, causing the equilibrium price to rise and equilibrium quantity to rise. 
C)  The supply of cotton will decrease, causing the equilibrium price to fall and equilibrium quantity to fall. 
D)  The supply of cotton will decrease, causing the equilibrium price to rise and equilibrium quantity to fall.

Question 14

Use the following to answer questions:
Figure: Gains from Trade  
-(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Accepted Answer

A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500 
A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500

Question 15

Figure: Four Panel 3   Which of the panels shows the effect of a negative supply shock?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 16

If supply increases, ceteris paribus, market price will be ______ at the new equilibrium point.

Accepted Answer

A)  higher 
B)  lower 
C)  the same 
D)  either higher or lower 
A)  higher 
B)  lower 
C)  the same 
D)  either higher or lower

Question 17

Use the following to answer questions:
Figure: Market Equilibrium  
-(Figure: Market Equilibrium) According to the figure, the equilibrium price and quantity are:

Accepted Answer

A)  $1 and 4 units. 
B)  $4 and 8 units. 
C)  $2 and 4 units. 
D)  $3 and 6 units. 
A)  $1 and 4 units. 
B)  $4 and 8 units. 
C)  $2 and 4 units. 
D)  $3 and 6 units.

Question 18

Figure: Four Panel 2   Which of the four panels shows an increase in income on an inferior good?

Accepted Answer

A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D 
A)  Panel A 
B)  Panel B 
C)  Panel C 
D)  Panel D

Question 19

Which of the following is a contribution of economist Vernon Smith?

Accepted Answer

A)  the idea of movements along the supply and demand curves 
B)  the discovery of equilibrium price 
C)  experimental evidence of equilibrium price 
D)  the theory of demand shocks 
A)  the idea of movements along the supply and demand curves 
B)  the discovery of equilibrium price 
C)  experimental evidence of equilibrium price 
D)  the theory of demand shocks

Question 20

If the price of Nike Air Force 1 sneakers is below the equilibrium price:

Accepted Answer

A)  competition will eventually push the price up. 
B)  there will be a surplus of sneakers. 
C)  quantity demanded will increase as the price rises to meet the equilibrium price. 
D)  quantity supplied will be greater than quantity demanded. 
A)  competition will eventually push the price up. 
B)  there will be a surplus of sneakers. 
C)  quantity demanded will increase as the price rises to meet the equilibrium price. 
D)  quantity supplied will be greater than quantity demanded.

Exam 4: Equilibrium

Vernon Smith, Nobel Prize-winning economist, revolutionized economics by testing the model of demand and supply in experimental settings.

Free markets maximize consumer plus producer surplus regardless of the level of competition.

What effect did the 1997 East Asian recession in countries such as South Korea, Indonesia, and Thailand have on the oil market?

When there is a surplus of a good:

Which statement most accurately explains the upward trend in the market price of oil since around the year 2000?

A shortage occurs when:

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will ______ the quantity supplied, causing the price of tree cutting/removal services to ______.

How did the spread of the Internet affect the market for newspapers?

What is the difference between a "change in demand" and a "change in quantity demanded"? Graph your answer.

In order for the gains of trade to be maximized, everyone whose willingness to pay for the good is greater than zero must receive it.

Tim values treats for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box but only one box is available between these two buyers, then gains from trade will be maximized when:

What will happen in the market for cotton as a result of a severe drought?

Use the following to answer questions: Figure: Gains from Trade -(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Figure: Four Panel 3 Which of the panels shows the effect of a negative supply shock?

If supply increases, ceteris paribus, market price will be ______ at the new equilibrium point.

Use the following to answer questions: Figure: Market Equilibrium -(Figure: Market Equilibrium) According to the figure, the equilibrium price and quantity are:

Figure: Four Panel 2 Which of the four panels shows an increase in income on an inferior good?

Which of the following is a contribution of economist Vernon Smith?

If the price of Nike Air Force 1 sneakers is below the equilibrium price:

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

Immediately after a hurricane, it is likely that the quantity demanded for tree cutting/removal services will the quantity supplied, causing the price of tree cutting/removal services to .