Question 1

Which of the following is most likely to lead to an increase in the rental price of apartments near your campus?

Accepted Answer

A)  lower property taxes on apartment buildings 
B)  an unexpected increase in enrollment at your college 
C)  lower prices for the bricks used in the construction of apartments 
D)  the building of a new large dormitory on the college campus

Question 2

For a typical product, a decrease in consumer income will cause the market demand for the product to

Accepted Answer

A)  decrease, which is a shift to the left of the demand curve. 
B)  decrease, which is a shift to the right of the demand curve. 
C)  increase, which is a shift to the left of the demand curve. 
D)  increase, which is a shift to the right of the demand curve.

Question 3

Graphically, the area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called

Accepted Answer

A)  consumer surplus. 
B)  producer surplus. 
C)  marginal cost. 
D)  triangular arbitrage.

Question 4

"He [the producer] intends only his gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?

Accepted Answer

A)  the elasticity of the market demand curve 
B)  the power of government when decisions are made democratically 
C)  the guidelines and regulations set for his industry by the government 
D)  the incentive structure accompanying market prices

Question 5

Suppose demand decreases and supply decreases. Which of the following will happen?

Accepted Answer

A)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will decrease. 
B)  Equilibrium price will rise, fall, or stay the same while equilibrium quantity will increase 
C)  Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase. 
D)  Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease. 
E)  The change in equilibrium price and quantity cannot be determined.

Question 6

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease?

Accepted Answer

A)  an increase in the price of plastic used to make garden hoses 
B)  a technological advance that lowers the cost of producing garden hoses 
C)  the occurrence of a very dry year with little rain 
D)  a decrease in the price of grass seed

Question 7

Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are 'price gouging.' Are there any positive functions played by the higher price of eggs around Easter? What would happen if the price of eggs were not permitted to rise by law?

Accepted Answer

The answer of Around Easter time, the price of eggs...

Question 8

Figure 3-22     Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress from winter to spring?

Accepted Answer

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

Question 9

Andrew buys yogurt, and he would be willing to pay more than he now pays. Suppose that Andrew has a change in his tastes such that he values yogurt more than before. If the market price is the same as before, then

Accepted Answer

A)  Andrew's consumer surplus would be unaffected. 
B)  Andrew's consumer surplus would increase. 
C)  Andrew's consumer surplus would decrease. 
D)  Andrew would be wise to buy less yogurt than before.

Question 10

Which of the following is the best description of the effects of an increase in the supply of bread?

Accepted Answer

A)  Consumers will pay more for bread. 
B)  Bread prices will fall, and bread sales will rise. 
C)  A permanent surplus of bread will remain on the market. 
D)  Bakers will have higher marginal costs.

Question 11

If the supply of a good is relatively inelastic, this means that the quantity supplied of the good is

Accepted Answer

A)  not very sensitive to the price of the good. 
B)  highly sensitive to the price of the good. 
C)  unrelated to the price of the good. 
D)  none of the above.

Question 12

When property rights are well defined and markets are competitive,

Accepted Answer

A)  the total gains from trade (the combined area of producer and consumer surplus) are maximized at the market equilibrium. 
B)  the market equilibrium is consistent with economic efficiency in that all units creating more benefit than cost have been produced. 
C)  the market will automatically move toward the price and quantity where the quantity supplied and the quantity demanded are in balance. 
D)  all of the above are true.

Question 13

Figure 3-1  Which of the following is true regarding the market for steak shown in Figure 3-1?

Accepted Answer

A)  If the price of steak were $2 per pound, producers would want to supply less steak than consumers would want to buy. 
B)  If the price of steak were $4 per pound, producers would want to supply more steak than consumers would want to buy. 
C)  If the price of steak were $3 per pound, producers would want to supply the same amount of steak that consumers would want to buy. 
D)  All of the above are true regarding the market for steak shown in the figure.

Question 14

If there is a decrease in both the supply and demand for a good, which of the following will definitely occur?

Accepted Answer

A)  The price of the good will increase. 
B)  The price of the good will decrease. 
C)  The equilibrium quantity will increase. 
D)  The equilibrium quantity will decrease.

Question 15

Figure 3-23  Refer to Figure 3-23. It is apparent from the figure that

Accepted Answer

A)  the good is inferior. 
B)  the demand for the good decreases as income increases. 
C)  the demand for the good conforms to the law of demand. 
D)  All of the above are correct.

Question 16

Which of the following would most likely cause both a decrease in the price of plasma screen TVs and a decrease in the number sold?

Accepted Answer

A)  an increase in the supply of plasma screen TVs 
B)  an increase in the demand for plasma screen TVs 
C)  a decrease in the supply of plasma screen TVs 
D)  a decrease in the demand for plasma screen TVs

Question 17

Table 3-1  Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $18, then their total consumer surplus is

Accepted Answer

A)  $38. 
B)  $42. 
C)  $46. 
D)  $72.

Question 18

Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

Accepted Answer

A)  $25. 
B)  $110. 
C)  $135. 
D)  $160.

Question 19

The price of a good will tend to fall when

Accepted Answer

A)  there is excess demand for the good. 
B)  there is excess supply of the good. 
C)  demand for the good increases. 
D)  the supply of the good decreases.

Question 20

The efficiency of market organization is dependent on which of the following?

Accepted Answer

A)  well-regulated supply and demand 
B)  the availability of low cost resources and high tariffs on foreign imports 
C)  competitive markets and well-defined and enforced private property rights 
D)  Government establishment of the invisible hand principle and the inelasticity of certain goods.

Exam 3: Demand, Supply, and the Market Process