Question 1

Suppose all of the major computer manufacturers announced that beginning next month there would be major price reductions on their computers. This would cause the current demand for computers to

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  increase if the demand for computers was relatively inelastic, but decrease if the demand for computers was relatively elastic.

Question 2

Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Accepted Answer

A)  an increase in consumer income between 1994 and 2004 
B)  a reduction in the price of residential phone service, a substitute for cellular phone service 
C)  an increase in the wages of workers in the cellular phone industry 
D)  technological improvements that reduced the cost of supplying cellular phone service

Question 3

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Accepted Answer

A)  No; lower interest rates will tend to slow down the economy, and this will be bad for the stock market. 
B)  Yes; the lower rates of interest will increase the value of future income (and capital gains), and stock prices will rise to reflect this factor. 
C)  No; the lower rates of interest will reduce the value of future income (and capital gains), and this will cause stock prices to fall. 
D)  Yes; the lower interest rates will cause inflation, and inflation is generally good for the stock market.

Question 4

Under competitive conditions, market prices

Accepted Answer

A)  generally convey little information about the value and cost of goods. 
B)  do not usually have much of an effect on the decisions of individuals. 
C)  are incapable of coordinating the actions of buyers and sellers. 
D)  generally bring the self-interest of individuals into harmony with the general welfare.

Question 5

Suppose prices for new homes have risen and sales of new homes have also risen. We can conclude that

Accepted Answer

A)  the demand for new homes has risen. 
B)  the law of demand has been violated. 
C)  new firms have entered the construction industry. 
D)  construction firms must be facing higher costs.

Question 6

Figure 3-18 
-Refer to Figure 3-18. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

Accepted Answer

A)  ABD 
B)  ACF 
C)  BCED 
D)  DEF

Question 7

If the supply of a good increased, what would be the effect on the equilibrium price and quantity?

Accepted Answer

A)  Price would increase and quantity would decrease. 
B)  Price would decrease and quantity would decrease. 
C)  Price would increase and quantity would increase. 
D)  Price would decrease and quantity would increase.

Question 8

In a typical college town, when students go home for the summer, the demand for many items such as pizza and textbooks

Accepted Answer

A)  decreases, which is a shift to the left of the demand curves for these goods. 
B)  decreases, which is a shift to the right of the demand curves for these goods. 
C)  increases, which is a shift to the left of the demand curves for these goods. 
D)  increases, which is a shift to the right of the demand curves for these goods.

Question 9

According to the law of supply,

Accepted Answer

A)  more of a good is desired by consumers as the price falls. 
B)  less of a good is desired by consumers as the price rises. 
C)  more of a good will be offered by suppliers as the price rises. 
D)  less of a good will be offered by suppliers as the price rises.

Question 10

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

Accepted Answer

A)  Hewlett-Packard 
B)  IBM 
C)  Dell Computer Corporation 
D)  Wal-Mart

Question 11

When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were

Accepted Answer

A)  seeking to profit from society's needs rather than following the guidance of the invisible hand, which would have led them to seek jobs serving society rather than jobs with higher pay. 
B)  following the guidance of the invisible hand and probably serving society's best interests as well as their own. 
C)  causing oil prices to rise even more by moving to jobs with higher salaries. 
D)  helping themselves but hurting the economy.

Question 12

Figure 3-21 
-Refer to Figure 3-21. At the quantity Q3,

Accepted Answer

A)  the market is in equilibrium. 
B)  consumer surplus is maximized. 
C)  the sum of consumer surplus and producer surplus is maximized. 
D)  the value to buyers is less than the cost to sellers.

Question 13

Which of the following are true?

Accepted Answer

A)  Economists use the criterion of economic efficiency to judge the merit of alternative outcomes. 
B)  Undertaking an economic action will be efficient if it produces more benefits than costs for the individuals of the economy. 
C)  Undertaking an economic action will be inefficient if it produces more costs than benefits to the individuals. 
D)  All of the above are true.

Question 14

If cable TV service and satellite TV service are substitutes,

Accepted Answer

A)  a decrease in the price of cable will decrease the demand for satellite TV. 
B)  an increase in the price of cable will decrease the demand for satellite TV. 
C)  an increase in the price of cable will generally have no effect on the demand for satellite TV. 
D)  an increase in the price of cable will shift the demand curve for satellite TV to the left.

Question 15

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Accepted Answer

A)  Take wheat from government storage and sell it. 
B)  Encourage farmers to use more fertilizer. 
C)  Lower the price of rye. 
D)  Subsidize purchases of farm equipment. 
E)  Encourage farmers to grow less wheat.

Question 16

Investors are often willing to pay positive prices for shares of firms that have never earned a profit because the investors

Accepted Answer

A)  do not know the firms have never earned a profit. 
B)  expect the firms to have positive net earnings in the future. 
C)  expect that interest rates will rise in the future. 
D)  expect that higher rates of inflation will push stock prices higher in the future.

Question 17

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

Accepted Answer

A)  Y and Z are complements. 
B)  Y and Z are substitutes. 
C)  Y and Z are unrelated. 
D)  the demand for Y is elastic, but the demand for Z is inelastic.

Question 18

Consumer surplus

Accepted Answer

A)  is the difference between total willingness to pay and the total amount actually paid. 
B)  guarantees that the market value of a good in money is equal to the total economic value of the good. 
C)  is always negative because of diminishing marginal utility. 
D)  is the total area under a consumer's demand curve.

Question 19

If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by

Accepted Answer

A)  an increase in the supply of the good. 
B)  an increase in the demand for the good. 
C)  a decrease in the demand for the good. 
D)  a decrease in the supply of the good.

Question 20

Which of the following will cause a decrease in the demand for peanut butter?

Accepted Answer

A)  an increase in the supply of peanut butter 
B)  an increase in the price of peanut butter 
C)  a doubling of the price of bread 
D)  a drought in Georgia that destroyed 30 percent of the peanut crop 
E)  an increase in consumer income

Exam 3: Demand, Supply, and the Market Process

Suppose all of the major computer manufacturers announced that beginning next month there would be major price reductions on their computers. This would cause the current demand for computers to

Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Under competitive conditions, market prices

Suppose prices for new homes have risen and sales of new homes have also risen. We can conclude that

Figure 3-18 -Refer to Figure 3-18. When the price falls from P₁ to P₂, which area represents the increase in consumer surplus to existing buyers?

If the supply of a good increased, what would be the effect on the equilibrium price and quantity?

In a typical college town, when students go home for the summer, the demand for many items such as pizza and textbooks

According to the law of supply,

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were

Figure 3-21 -Refer to Figure 3-21. At the quantity Q₃,

Which of the following are true?

If cable TV service and satellite TV service are substitutes,

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Investors are often willing to pay positive prices for shares of firms that have never earned a profit because the investors

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

Consumer surplus

If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by

Which of the following will cause a decrease in the demand for peanut butter?

Exam 3: Demand, Supply, and the Market Process

Suppose all of the major computer manufacturers announced that beginning next month there would be major price reductions on their computers. This would cause the current demand for computers to

Between 1994 and 2004, the monthly charge for cellular phone service decreased from $120 per month to $30 per month. At the same time, the number of subscribers increased from less than 10 million to more than 75 million. Which of the following provides the best explanation for these changes?

Stock market analysts often argue that lower interest rates are good for the stock market. Does this argument make sense?

Under competitive conditions, market prices

Suppose prices for new homes have risen and sales of new homes have also risen. We can conclude that

Figure 3-18 -Refer to Figure 3-18. When the price falls from P1 to P2, which area represents the increase in consumer surplus to existing buyers?

If the supply of a good increased, what would be the effect on the equilibrium price and quantity?

In a typical college town, when students go home for the summer, the demand for many items such as pizza and textbooks

According to the law of supply,

If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk?

When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were

Figure 3-21 -Refer to Figure 3-21. At the quantity Q3,

Which of the following are true?

If cable TV service and satellite TV service are substitutes,

If you were a government official and wanted to raise the price of wheat, which of the following actions would you take?

Investors are often willing to pay positive prices for shares of firms that have never earned a profit because the investors

If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that

Consumer surplus

If we observe an increase in the price of a good and an increase in the amount of the good bought and sold, this could be explained by

Which of the following will cause a decrease in the demand for peanut butter?

Figure 3-18 -Refer to Figure 3-18. When the price falls from P₁ to P₂, which area represents the increase in consumer surplus to existing buyers?

Figure 3-21 -Refer to Figure 3-21. At the quantity Q₃,