Question 1

Use the following to answer questions:
Figure: Basic Supply and Demand  
-(Figure: Basic Supply and Demand) In the diagram, the market price is stable only at a price of:

Accepted Answer

A)  $2. 
B)  $3. 
C)  $4. 
D)  $50. 
A)  $2. 
B)  $3. 
C)  $4. 
D)  $50.

Question 2

A shortage occurs when consumers want to buy more goods than sellers are making available.

Accepted Answer

A) True 
 B)False

Question 3

With an equilibrium price of $10, a price of $10.99 would create an excess supply.

Accepted Answer

A) True 
 B)False

Question 4

If the market price is below the equilibrium price, which of the following will occur?

Accepted Answer

A)  Quantity demanded will exceed quantity supplied and the market price will eventually fall. 
B)  Quantity demanded will exceed quantity supplied and the market price will eventually rise. 
C)  Quantity supplied will exceed quantity demanded and the market price will eventually fall. 
D)  Quantity supplied will exceed quantity demanded and the market price will eventually rise. 
A)  Quantity demanded will exceed quantity supplied and the market price will eventually fall. 
B)  Quantity demanded will exceed quantity supplied and the market price will eventually rise. 
C)  Quantity supplied will exceed quantity demanded and the market price will eventually fall. 
D)  Quantity supplied will exceed quantity demanded and the market price will eventually rise.

Question 5

When there is a surplus, sellers have an incentive to ______ their price and buyers have an incentive to offer a ______ price.

Accepted Answer

A)  increase; lower 
B)  decrease; lower 
C)  increase; higher 
D)  decrease; higher 
A)  increase; lower 
B)  decrease; lower 
C)  increase; higher 
D)  decrease; higher

Question 6

Imagine a free market in which at a price of $10, quantity supplied is 50 units and quantity demanded is 50 units. Equilibrium price in this market:

Accepted Answer

A)  is equal to $10. 
B)  is less than $10. 
C)  is greater than $10. 
D)  differs from $10 in an indeterminate direction. 
A)  is equal to $10. 
B)  is less than $10. 
C)  is greater than $10. 
D)  differs from $10 in an indeterminate direction.

Question 7

When a surplus exists in a market, we know that the actual price is:

Accepted Answer

A)  above equilibrium price, and quantity supplied is greater than quantity demanded. 
B)  above equilibrium price, and quantity demanded is greater than quantity supplied. 
C)  below equilibrium price, and quantity demanded is greater than quantity supplied. 
D)  below equilibrium price, and quantity supplied is greater than quantity demanded. 
A)  above equilibrium price, and quantity supplied is greater than quantity demanded. 
B)  above equilibrium price, and quantity demanded is greater than quantity supplied. 
C)  below equilibrium price, and quantity demanded is greater than quantity supplied. 
D)  below equilibrium price, and quantity supplied is greater than quantity demanded.

Question 8

Use the following to answer questions:
Figure: Basic Supply and Demand  
-(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE?

Accepted Answer

A)  When the price is $3, the quantity demanded exceeds the quantity supplied by 60 units. 
B)  When the price is $2, the quantity demanded exceeds the quantity supplied by 40 units. 
C)  When the price is $4, the quantity demanded is less than the quantity supplied by 40 units. 
D)  When the price is $2, there is a tendency for the price to rise in the future. 
A)  When the price is $3, the quantity demanded exceeds the quantity supplied by 60 units. 
B)  When the price is $2, the quantity demanded exceeds the quantity supplied by 40 units. 
C)  When the price is $4, the quantity demanded is less than the quantity supplied by 40 units. 
D)  When the price is $2, there is a tendency for the price to rise in the future.

Question 9

If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?

Accepted Answer

A)  The price of oil would rise because of the competition from the new energy source. 
B)  The supply of oil would decrease because few suppliers can profitably produce oil at $10 a barrel. 
C)  There would be no effect on the market for oil. 
D)  Demand for oil would decrease over time since no one would pay more than $10 for a barrel of oil to produce energy. 
A)  The price of oil would rise because of the competition from the new energy source. 
B)  The supply of oil would decrease because few suppliers can profitably produce oil at $10 a barrel. 
C)  There would be no effect on the market for oil. 
D)  Demand for oil would decrease over time since no one would pay more than $10 for a barrel of oil to produce energy.

Question 10

A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.

Accepted Answer

A)  supply; fall; quantity demanded to increase 
B)  the quantity supplied; fall; quantity demanded to increase 
C)  supply; rise; demand to decrease 
D)  supply; fall; demand to increase 
A)  supply; fall; quantity demanded to increase 
B)  the quantity supplied; fall; quantity demanded to increase 
C)  supply; rise; demand to decrease 
D)  supply; fall; demand to increase

Question 11

In a free market, the market moves to an equilibrium because buyers compete against sellers to get the lowest possible prices.

Accepted Answer

A) True 
 B)False

Question 12

Use the following to answer questions:
Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If these figures represent the market for new cars, which figure shows the effect of an economic recession?

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 13

The price of professional sports tickets is high; therefore, you should blame the owners for taking advantage of the fans, not the other buyers for outbidding you.

Accepted Answer

A) True 
 B)False

Question 14

In a market diagram, demand and supply cross each other at the equilibrium point.

Accepted Answer

A) True 
 B)False

Question 15

If a market has a surplus, how will the market respond?

Accepted Answer

A)  The price will fall and the quantity supplied will fall. 
B)  The price will fall and the quantity supplied will rise. 
C)  The price will rise and the quantity supplied will fall. 
D)  The price will rise and the quantity supplied will rise. 
A)  The price will fall and the quantity supplied will fall. 
B)  The price will fall and the quantity supplied will rise. 
C)  The price will rise and the quantity supplied will fall. 
D)  The price will rise and the quantity supplied will rise.

Question 16

Laboratory experiments by Vernon Smith support:

Accepted Answer

A)  the supply and demand model's usefulness in predicting changes in a free market. 
B)  a market equilibrium where the quantity supplied always exceeds the quantity demanded. 
C)  a market equilibrium where the quantity demanded always exceeds the quantity supplied. 
D)  suspicions that a market equilibrium does not exist in the real world. 
A)  the supply and demand model's usefulness in predicting changes in a free market. 
B)  a market equilibrium where the quantity supplied always exceeds the quantity demanded. 
C)  a market equilibrium where the quantity demanded always exceeds the quantity supplied. 
D)  suspicions that a market equilibrium does not exist in the real world.

Exam 4: Equilibrium

Use the following to answer questions: Figure: Basic Supply and Demand -(Figure: Basic Supply and Demand) In the diagram, the market price is stable only at a price of:

A shortage occurs when consumers want to buy more goods than sellers are making available.

With an equilibrium price of $10, a price of $10.99 would create an excess supply.

If the market price is below the equilibrium price, which of the following will occur?

When there is a surplus, sellers have an incentive to ______ their price and buyers have an incentive to offer a ______ price.

Imagine a free market in which at a price of $10, quantity supplied is 50 units and quantity demanded is 50 units. Equilibrium price in this market:

When a surplus exists in a market, we know that the actual price is:

Use the following to answer questions: Figure: Basic Supply and Demand -(Figure: Basic Supply and Demand) In the diagram, which of the following statements is TRUE?

If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?

A technological innovation in the production of golf balls increases ______, causing the price to ______ and the ______.

In a free market, the market moves to an equilibrium because buyers compete against sellers to get the lowest possible prices.

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If these figures represent the market for new cars, which figure shows the effect of an economic recession?

The price of professional sports tickets is high; therefore, you should blame the owners for taking advantage of the fans, not the other buyers for outbidding you.

In a market diagram, demand and supply cross each other at the equilibrium point.

If a market has a surplus, how will the market respond?

Laboratory experiments by Vernon Smith support:

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 there is a surplus, sellers have an incentive to their price and buyers have an incentive to offer a price.

A technological innovation in the production of golf balls increases , causing the price to and the __.