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

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 3

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 4

Use the following to answer questions 
Figure: Demand,Supply Shifts  
-(Figure: Demand,Supply Shifts)In the figure,the initial demand curve is D1 and the initial supply curve is S1.If technological innovations lower the costs of production,what will happen?

Accepted Answer

A)  D1 will shift to D3 and equilibrium price and equilibrium quantity will increase. 
B)  S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease. 
C)  D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease. 
D)  S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase. 
A)  D1 will shift to D3 and equilibrium price and equilibrium quantity will increase. 
B)  S1 will shift to S2 and equilibrium price will increase but equilibrium quantity will decrease. 
C)  D1 will shift to D2 and equilibrium price and equilibrium quantity will decrease. 
D)  S1 will shift to S3 and equilibrium price will decrease but equilibrium quantity will increase.

Question 5

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 6

Use the following to answer questions 
Figure: Price and Quantity 3  
-(Figure: Price and Quantity 3)Which of the following statements is TRUE at a market's equilibrium price and quantity? I.Consumer surplus plus producer surplus is maximized.
II.Goods are purchased by buyers who value them the most.
III.The lowest-cost producers manufacture the goods.
IV.The gains from trade are minimized.

Accepted Answer

A)  I and IV only 
B)  II and III only 
C)  I,II,and III only 
D)  I,II,III,and IV 
A)  I and IV only 
B)  II and III only 
C)  I,II,and III only 
D)  I,II,III,and IV

Question 7

Use the following to answer questions 
Figure: Price and Quantity 3  
-Vernon Smith tested the supply and demand model in the laboratory and found that:

Accepted Answer

A)  the results were not consistent with competitive price theory,as he expected. 
B)  buyers and sellers quickly converged on the predicted equilibrium. 
C)  the model may work in real life,but it does not work in the laboratory. 
D)  the buyers with the lowest willingness to pay bought the goods. 
A)  the results were not consistent with competitive price theory,as he expected. 
B)  buyers and sellers quickly converged on the predicted equilibrium. 
C)  the model may work in real life,but it does not work in the laboratory. 
D)  the buyers with the lowest willingness to pay bought the goods.

Question 8

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 9

In 1980 when Iraq attacked Iran,the price of oil _______ because of a(n)______.

Accepted Answer

A)  increased;disruption in the supply of oil 
B)  increased;decrease in the demand for oil 
C)  fell;increased demand for oil 
D)  fell;increased quantity of oil supplied 
A)  increased;disruption in the supply of oil 
B)  increased;decrease in the demand for oil 
C)  fell;increased demand for oil 
D)  fell;increased quantity of oil supplied

Question 10

Figure: Supply Shift   In the figure,the supply curve shifted from S0 to S1.To describe this movement,we would say that:

Accepted Answer

A)  demand decreased,which caused a decrease in supply. 
B)  supply decreased,which caused a decrease in quantity demanded. 
C)  supply decreased,which caused a decrease in demand. 
D)  supply increased,which caused a decrease in quantity demanded. 
A)  demand decreased,which caused a decrease in supply. 
B)  supply decreased,which caused a decrease in quantity demanded. 
C)  supply decreased,which caused a decrease in demand. 
D)  supply increased,which caused a decrease in quantity demanded.

Question 11

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 12

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 13

If demand decreases,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 14

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 value of the unexploited gains from trade is:

Accepted Answer

A)  $200. 
B)  $500. 
C)  $600. 
D)  $900. 
A)  $200. 
B)  $500. 
C)  $600. 
D)  $900.

Question 15

An increase in demand and a decrease in supply occur in a market.What happens to the equilibrium price and quantity?

Accepted Answer

A)  The equilibrium price decreases;the change in the equilibrium quantity is uncertain. 
B)  The equilibrium price decreases;the equilibrium quantity increases. 
C)  The equilibrium price increases;the change in the equilibrium quantity is uncertain 
D)  The equilibrium price increases;the equilibrium quantity decreases. 
A)  The equilibrium price decreases;the change in the equilibrium quantity is uncertain. 
B)  The equilibrium price decreases;the equilibrium quantity increases. 
C)  The equilibrium price increases;the change in the equilibrium quantity is uncertain 
D)  The equilibrium price increases;the equilibrium quantity decreases.

Question 16

Use the following to answer questions 
Figure: Market Equilibrium  
-(Figure: Market Equilibrium)Refer to the figure.At a price of $3,quantity supplied is ______ and quantity demanded is ______,leading to a _______.

Accepted Answer

A)  6;2;surplus of 4 units 
B)  2;6;shortage of 8 units 
C)  2;4;surplus of 2 units 
D)  4;2;shortage of 2 units 
A)  6;2;surplus of 4 units 
B)  2;6;shortage of 8 units 
C)  2;4;surplus of 2 units 
D)  4;2;shortage of 2 units

Question 17

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 18

Which of the following might explain why the price of DVD players has been falling?

Accepted Answer

A)  an increase in consumer income 
B)  a decrease in the price of high-definition Blu-ray players 
C)  a decrease in the price of DVDs 
D)  an increase in the price of gasoline 
A)  an increase in consumer income 
B)  a decrease in the price of high-definition Blu-ray players 
C)  a decrease in the price of DVDs 
D)  an increase in the price of gasoline

Question 19

Use the following to answer questions 
Figure: Gains from Trade  
-(Figure: Gains from Trade)Refer to the figure.What are the unexploited 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 20

If supply decreases,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

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

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

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: Demand,Supply Shifts -(Figure: Demand,Supply Shifts)In the figure,the initial demand curve is D₁ and the initial supply curve is S₁.If technological innovations lower the costs of production,what will happen?

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

Use the following to answer questions Figure: Price and Quantity 3 -Vernon Smith tested the supply and demand model in the laboratory and found that:

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

In 1980 when Iraq attacked Iran,the price of oil _ because of a(n).

Figure: Supply Shift In the figure,the supply curve shifted from S₀ to S₁.To describe this movement,we would say that:

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

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

If demand decreases,ceteris paribus,market price will be ______ at the new equilibrium point.

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 value of the unexploited gains from trade is:

An increase in demand and a decrease in supply occur in a market.What happens to the equilibrium price and quantity?

Use the following to answer questions Figure: Market Equilibrium -(Figure: Market Equilibrium)Refer to the figure.At a price of $3,quantity supplied is and quantity demanded is ,leading to a ___.

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:

Which of the following might explain why the price of DVD players has been falling?

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

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

The Big Ideas

The Power of Trade

Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Exam 4: Equilibrium- How Supply and Demand

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

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

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: Demand,Supply Shifts -(Figure: Demand,Supply Shifts)In the figure,the initial demand curve is D1 and the initial supply curve is S1.If technological innovations lower the costs of production,what will happen?

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

Use the following to answer questions Figure: Price and Quantity 3 -Vernon Smith tested the supply and demand model in the laboratory and found that:

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

In 1980 when Iraq attacked Iran,the price of oil _______ because of a(n)______.

Figure: Supply Shift In the figure,the supply curve shifted from S0 to S1.To describe this movement,we would say that:

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

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

If demand decreases,ceteris paribus,market price will be ______ at the new equilibrium point.

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 value of the unexploited gains from trade is:

An increase in demand and a decrease in supply occur in a market.What happens to the equilibrium price and quantity?

Use the following to answer questions Figure: Market Equilibrium -(Figure: Market Equilibrium)Refer to the figure.At a price of $3,quantity supplied is ______ and quantity demanded is ______,leading to a _______.

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:

Which of the following might explain why the price of DVD players has been falling?

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

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

The Big Ideas

The Power of Trade

Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Use the following to answer questions Figure: Demand,Supply Shifts -(Figure: Demand,Supply Shifts)In the figure,the initial demand curve is D₁ and the initial supply curve is S₁.If technological innovations lower the costs of production,what will happen?

In 1980 when Iraq attacked Iran,the price of oil _ because of a(n).

Figure: Supply Shift In the figure,the supply curve shifted from S₀ to S₁.To describe this movement,we would say that:

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

Use the following to answer questions Figure: Market Equilibrium -(Figure: Market Equilibrium)Refer to the figure.At a price of $3,quantity supplied is and quantity demanded is ,leading to a ___.