Question 1

Figure 3-20
 
-Refer to Figure 3-20. If the price decreases from $22 to $16, consumer surplus increases by

Accepted Answer

A)  $120.
B)  $360.
C)  $480.
D)  $600. B

Question 2

Market prices generally promote social cooperation because they

Accepted Answer

A)  clarify the options available to people and encourage individuals to help others in exchange for income.
B)  encourage government officials to levy taxes to provide people with the necessities of life.
C)  eliminate scarcity by allowing prices to rise.
D)  reward only altruistic actions, whereby, people seek to help others without the expectation of personal gain. A

Question 3

If there is an increase 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. C

Question 4

Suppose demand increases and supply increases. 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 5

Figure 3-18
 
-Refer to Figure 3-18. Which area represents consumer surplus at a price of P₁?

Accepted Answer

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

Question 6

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 7

Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the United States and asks to see a market in action. Where would you take her? Did you give her a complete showing of this market?

Accepted Answer

The answer of Suppose a person defects from Cuba (a...

Question 8

If the market price is above the equilibrium price, there will be a tendency for price to decrease, causing

Accepted Answer

A)  the quantity demanded to decrease and the quantity supplied to increase until they are equal.
B)  the quantity demanded to increase and the quantity supplied to decrease until they are equal.
C)  both quantity demanded and quantity supplied to decrease until they are equal.
D)  both quantity demanded and quantity supplied to increase until they are equal.

Question 9

"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 famous economist made this statement?

Accepted Answer

A)  Alfred Marshall
B)  Friedrich Hayek
C)  Adam Smith
D)  David Ricardo

Question 10

According to economic theory, which of the following would most likely cause the demand curve for hamburgers to decrease?

Accepted Answer

A)  a drop in the price of hot dogs
B)  an increase in the price of hamburgers
C)  a drop in the price of hamburgers
D)  a technological advance that reduces the cost of making frozen hamburger patties.

Question 11

Which of the following would be most likely to cause the demand for Miller beer to increase?

Accepted Answer

A)  an increase in the price of Budweiser beer
B)  a decrease in consumer income
C)  a decrease in the price of barley used to make Miller beer
D)  a decrease in the price of Miller beer

Question 12

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 13

Figure 3-16
 
-Refer to Figure 3-16. When the price is P₂, producer surplus is

Accepted Answer

A)  A.
B)  A + C.
C)  A + B + C.
D)  D + E.

Question 14

Suppose a new law requires all piercing studios to pass tougher licensing tests and to begin using more costly sterilization methods. Other things constant, this law would cause

Accepted Answer

A)  an increase in the supply of piercings and a lower price for piercings.
B)  an increase in the supply of piercings and a higher price for piercings.
C)  a decrease in the supply of piercings and a higher price for piercings.
D)  a decrease in the supply of piercings and a lower price for piercings.

Question 15

When experts first predicted major weather-related coffee crop failures in Central and South America in 1986, the price of coffee already on grocery shelves in the United States increased sharply. When coffee became temporarily more scarce, the usefulness to society of "coffee conservation" increased. The immediate sharp price increase (which soon leveled off) gave consumers an incentive to

Accepted Answer

A)  buy all the coffee they could at the higher prices and hoard it, since there was obviously a shortage.
B)  drink as much coffee as possible at the higher price.
C)  start conserving coffee immediately and switch to other beverages if it was easy to do so.
D)  ignore the price of coffee and drink it as they normally would.

Question 16

Market prices are

Accepted Answer

A)  conveyors of information.
B)  determined by the interactions of supply and demand in voluntary exchange.
C)  indicators of the relative scarcity of resources and products.
D)  all of the above.

Question 17

Figure 3-18
 
-Refer to Figure 3-18. Which area represents consumer surplus at a price of P₂?

Accepted Answer

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

Question 18

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 19

Suppose both the equilibrium price and quantity fall for a particular product. Which of the following best explains this situation?

Accepted Answer

A)  Supply and demand simultaneously increased and the shift in supply was greater than the shift in demand.
B)  Supply and demand simultaneously increased and the shift in supply was less than the shift in demand.
C)  Supply and demand simultaneously decreased and the shift in supply was greater than the shift in demand.
D)  Supply and demand simultaneously decreased and the shift in supply was less than the shift in demand.

Question 20

If cigars and cigarettes are substitute goods, an increase in the price of cigars would result in

Accepted Answer

A)  an increase in the demand for cigarettes.
B)  a decrease in the price of cigarettes.
C)  a decrease in the demand for cigarettes.
D)  a decrease in the demand for cigars.

Exam 3: B: Supply, Demand, and the Market Process

Figure 3-20 -Refer to Figure 3-20. If the price decreases from $22 to $16, consumer surplus increases by