Question 1

Why did Vernon Smith win the Nobel Prize in Economics in 2002?

Accepted Answer

A)  He created the theory of supply and demand. 
B)  He used laboratory experiments as a tool to confirm the theory of supply and demand. 
C)  He was able to disprove the theory of supply and demand. 
D)  This is a trick question, because Vernon Smith did not win the Nobel Prize. 
A)  He created the theory of supply and demand. 
B)  He used laboratory experiments as a tool to confirm the theory of supply and demand. 
C)  He was able to disprove the theory of supply and demand. 
D)  This is a trick question, because Vernon Smith did not win the Nobel Prize.

Question 2

The equilibrium price is:

Accepted Answer

A)  the price at which quantity demanded is equal to quantity supplied. 
B)  never higher than what most consumers are willing to pay. 
C)  unstable. 
D)  the highest price at which all consumers can afford a good. 
A)  the price at which quantity demanded is equal to quantity supplied. 
B)  never higher than what most consumers are willing to pay. 
C)  unstable. 
D)  the highest price at which all consumers can afford a good.

Question 3

An increase in supply causes a temporary surplus at the old equilibrium price.

Accepted Answer

A) True 
 B)False

Question 4

When the market price is above the equilibrium, the price will increase over time.

Accepted Answer

A) True 
 B)False

Question 5

Use the following to answer questions:
Figure: Demand and Supply  
-(Figure: Demand and Supply) Refer to the figure. At the equilibrium quantity, total surplus is:

Accepted Answer

A)  $960. 
B)  $480. 
C)  $320. 
D)  $240 
A)  $960. 
B)  $480. 
C)  $320. 
D)  $240

Question 6

If supply decreases, ceteris paribus, the quantity exchanged will be ______ at the new market equilibrium point.

Accepted Answer

A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller 
A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller

Question 7

A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market?

Accepted Answer

A)  The equilibrium price is $20 and the equilibrium quantity is 10 units. 
B)  The equilibrium price is $50 and the equilibrium quantity is 100 units. 
C)  The equilibrium price is $30 and the equilibrium quantity is 10 units. 
D)  The equilibrium price is $10 and the equilibrium quantity is 20 units. 
A)  The equilibrium price is $20 and the equilibrium quantity is 10 units. 
B)  The equilibrium price is $50 and the equilibrium quantity is 100 units. 
C)  The equilibrium price is $30 and the equilibrium quantity is 10 units. 
D)  The equilibrium price is $10 and the equilibrium quantity is 20 units.

Question 8

Figure: Basic Supply and Demand
M  
In a free market, as illustrated in the diagram, total gains from trade are greatest when:

Accepted Answer

A)  60 units are sold at a price of $2. 
B)  40 units are sold at a price of $3. 
C)  60 units are sold at a price of $4. 
D)  50 units are sold at a price of $3. 
A)  60 units are sold at a price of $2. 
B)  40 units are sold at a price of $3. 
C)  60 units are sold at a price of $4. 
D)  50 units are sold at a price of $3.

Question 9

Figure: Price Adjustment   Refer to the figure. If the price of the product is $14, there is a:

Accepted Answer

A)  shortage of 30 units of the product, and the price will rise to $16. 
B)  surplus of 20 units of the product, and the price will rise to $16. 
C)  shortage of 50 units of the product, and the price will rise to $16. 
D)  surplus of 40 units of the product, and the price will rise to $16. 
A)  shortage of 30 units of the product, and the price will rise to $16. 
B)  surplus of 20 units of the product, and the price will rise to $16. 
C)  shortage of 50 units of the product, and the price will rise to $16. 
D)  surplus of 40 units of the product, and the price will rise to $16.

Question 10

When there is a shortage in the market, competition will:

Accepted Answer

A)  drive the price down to the equilibrium price. 
B)  drive the price up to the equilibrium price. 
C)  cause the demand curve to shift right. 
D)  cause the supply curve to increase. 
A)  drive the price down to the equilibrium price. 
B)  drive the price up to the equilibrium price. 
C)  cause the demand curve to shift right. 
D)  cause the supply curve to increase.

Question 11

When producers produce more than the equilibrium quantity:

Accepted Answer

A)  resources are wasted producing goods at a higher cost than consumers are willing to pay. 
B)  the market is operating at an abnormally high level of efficiency. 
C)  sellers have an incentive to reduce their price. 
D)  buyers have an incentive to offer a higher price. 
A)  resources are wasted producing goods at a higher cost than consumers are willing to pay. 
B)  the market is operating at an abnormally high level of efficiency. 
C)  sellers have an incentive to reduce their price. 
D)  buyers have an incentive to offer a higher price.

Question 12

A market can be described by the equations Qd = 200 - 3P and Qs = -50 + 2P. At a price of $40, will this market experience a shortage or a surplus and what is the amount of this shortage or surplus?

Accepted Answer

Equilibrium price is $50, and equilibriu

Question 13

Explain why an increase in demand for a good does not lead to an increase in supply. What does an increase in the demand for a good lead to?

Accepted Answer

An increase in the demand for a good doe

Question 14

In a free market when there are unexploited gains from trade:

Accepted Answer

A)  the market is slow to adjust to this situation. 
B)  there are sellers who are unwilling to sell at prices buyers are willing to pay. 
C)  there are buyers who are willing to pay more for goods than sellers are asking. 
D)  an equilibrium price and quantity have been reached. 
A)  the market is slow to adjust to this situation. 
B)  there are sellers who are unwilling to sell at prices buyers are willing to pay. 
C)  there are buyers who are willing to pay more for goods than sellers are asking. 
D)  an equilibrium price and quantity have been reached.

Question 15

Use the following to answer questions:
Figure: Chocolate  
-(Figure: Chocolate) If the price in the diagram is $5, what will happen?

Accepted Answer

A)  The price will increase because of a shortage. 
B)  The price will decrease because of a shortage. 
C)  The price will increase because of a surplus. 
D)  The price will decrease because of a surplus. 
A)  The price will increase because of a shortage. 
B)  The price will decrease because of a shortage. 
C)  The price will increase because of a surplus. 
D)  The price will decrease because of a surplus.

Question 16

Figure: Four Panel 1   Which of the four panels shows an increase in the quantity supplied?

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 17

When there is a recession, the price of oil tends to fall because:

Accepted Answer

A)  people drive more during recessions while looking for employment. 
B)  the supply of oil increases during a recession, due to technological change. 
C)  the prices of substitutes for oil rise during recessions. 
D)  incomes fall during a recession, and oil is a normal good. 
A)  people drive more during recessions while looking for employment. 
B)  the supply of oil increases during a recession, due to technological change. 
C)  the prices of substitutes for oil rise during recessions. 
D)  incomes fall during a recession, and oil is a normal good.

Question 18

The government must subsidize firms to ensure that there are no unexploited gains from trade.

Accepted Answer

A) True 
 B)False

Question 19

A market surplus can be defined as a situation in which the quantity demanded in a market is less than the quantity supplied, at the given price.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would cause the current supply of iPods to increase?

Accepted Answer

A)  an economic boom, which increases the amount that people are willing to spend on personal electronics 
B)  a decrease in the price of songs on iTunes 
C)  producers expecting that the future price of iPods will decrease 
D)  an increase in the wages offered to technicians building iPods 
A)  an economic boom, which increases the amount that people are willing to spend on personal electronics 
B)  a decrease in the price of songs on iTunes 
C)  producers expecting that the future price of iPods will decrease 
D)  an increase in the wages offered to technicians building iPods

Exam 4: Equilibrium

Why did Vernon Smith win the Nobel Prize in Economics in 2002?

The equilibrium price is:

An increase in supply causes a temporary surplus at the old equilibrium price.

When the market price is above the equilibrium, the price will increase over time.

Use the following to answer questions: Figure: Demand and Supply -(Figure: Demand and Supply) Refer to the figure. At the equilibrium quantity, total surplus is:

If supply decreases, ceteris paribus, the quantity exchanged will be ______ at the new market equilibrium point.

A market can be described by the equations Qd = 50 - 3P and Qs = 2P. What are the equilibrium price and quantity in this market?

Figure: Basic Supply and Demand M In a free market, as illustrated in the diagram, total gains from trade are greatest when:

Figure: Price Adjustment Refer to the figure. If the price of the product is $14, there is a:

When there is a shortage in the market, competition will:

When producers produce more than the equilibrium quantity:

A market can be described by the equations Qd = 200 - 3P and Qs = -50 + 2P. At a price of $40, will this market experience a shortage or a surplus and what is the amount of this shortage or surplus?

Explain why an increase in demand for a good does not lead to an increase in supply. What does an increase in the demand for a good lead to?

In a free market when there are unexploited gains from trade:

Use the following to answer questions: Figure: Chocolate -(Figure: Chocolate) If the price in the diagram is $5, what will happen?

Figure: Four Panel 1 Which of the four panels shows an increase in the quantity supplied?

When there is a recession, the price of oil tends to fall because:

The government must subsidize firms to ensure that there are no unexploited gains from trade.

A market surplus can be defined as a situation in which the quantity demanded in a market is less than the quantity supplied, at the given price.

Which of the following would cause the current supply of iPods to increase?

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

A market can be described by the equations Q_d = 50 - 3P and Q_s = 2P. What are the equilibrium price and quantity in this market?

A market can be described by the equations Q_d = 200 - 3P and Q_s = -50 + 2P. At a price of $40, will this market experience a shortage or a surplus and what is the amount of this shortage or surplus?