Question 1

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

Accepted Answer

A)  There is no difference between the two terms; they both refer to a shift of the demand curve. 
B)  An "increase in demand" is represented by a rightward shift of the demand curve while an "increase in quantity demanded" is represented by a movement along a given demand curve. 
C)  There is no difference between the two terms; they both refer to a movement downward along a given demand curve. 
D)  An "increase in demand" is represented by a movement along a given demand curve, while an "increase in quantity demanded" is represented by a rightward shift of the demand curve.

Question 2

Figure 3-5 
-Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by

Accepted Answer

A)  a price increase, increasing the supply and decreasing the demand. 
B)  a price decrease, decreasing the supply and increasing the demand. 
C)  a price decrease, decreasing the quantity supplied and increasing the quantity demanded. 
D)  a price increase, increasing the quantity supplied and decreasing the quantity demanded.

Question 3

If a decrease in income leads to an increase in the demand for macaroni, then macaroni is

Accepted Answer

A)  an inferior good. 
B)  a neutral good. 
C)  a necessity. 
D)  a normal good.

Question 4

A shortage occurs when the market price is lower than the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 5

If a firm expects that the price of its product will be lower in the future than it is today

Accepted Answer

A)  the firm has an incentive to increase supply now and decrease supply in the future. 
B)  the firm has an incentive to decrease supply now and increase supply in the future. 
C)  the firm has an incentive to increase quantity supplied now and decrease quantity supplied in the future. 
D)  the firm will not change supply until it knows for certain what will happen to its price.

Question 6

Which of the following would cause a decrease in the supply of milk?

Accepted Answer

A)  an increase in the price of cookies (assuming that milk and cookies are complements) 
B)  a decrease in the price of milk 
C)  an increase the price of a product that producers sell instead of milk 
D)  an increase in the number of firms that produce milk

Question 7

Cole was discussing the market for cocoa beans with his friend John Schmidt. Cole said, "Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has been rising and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping." Is Cole right? Briefly explain why or why not.

Accepted Answer

The answer of Cole was discussing the market for cocoa...

Question 8

Figure 3-1 
-Refer to Figure 3-1. A decrease in the price of the product would be represented by a movement from

Accepted Answer

A)  A to B. 
B)  B to A. 
C)  D1 to D2. 
D)  D2 to D1.

Question 9

Figure 3-8 
-Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?

Accepted Answer

A)  an increase in demand and an increase in supply 
B)  an increase in supply 
C)  an increase in supply and an increase in demand greater than the increase in supply 
D)  a decrease in demand and an increase in supply

Question 10

Assume that the demand curve for DVD players shifts to the left and the supply curve for DVD players shifts to the right, but the supply curve shifts less than the demand curve. As a result

Accepted Answer

A)  both the equilibrium price and quantity of DVD players will decrease. 
B)  the equilibrium price of DVD players will decrease; the equilibrium quantity may increase or decrease. 
C)  the equilibrium price of DVD players may increase or decrease; the equilibrium quantity will increase. 
D)  the equilibrium price of DVD players will decrease; the equilibrium quantity will increase.

Question 11

Table 3-1
 
-Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be

Accepted Answer

A)  51 lbs. 
B)  63 lbs. 
C)  76 lbs 
D)  146 lbs.

Question 12

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,

Accepted Answer

A)  the supply curve shifted to the right resulting in an increase in the equilibrium price. 
B)  the supply curve shifted to the left resulting in an increase in the equilibrium price. 
C)  the demand curve shifted to the right resulting in an increase in the equilibrium price. 
D)  the demand curve shifted to the left resulting in a decrease in the equilibrium price.

Question 13

An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments

Accepted Answer

A)  decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries. 
B)  decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries. 
C)  decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries. 
D)  decreased demand and increased supply, resulting in a decrease in both the equilibrium price and the equilibrium quantity of laser eye surgeries.

Question 14

Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family,

Accepted Answer

A)  hamburgers and chicken nuggets are complements. 
B)  hamburgers and chicken nuggets are inferior goods. 
C)  hamburgers and chicken nuggets are normal goods. 
D)  hamburgers and chicken nuggets are substitutes.

Question 15

Figure 3-2 
-Refer to Figure 3-2. A decrease in the expected future price of the product would be represented by a movement from

Accepted Answer

A)  A to B. 
B)  B to A. 
C)  S1 to S2. 
D)  S2 to S1.

Question 16

When the price of a good rises, consumers buy a smaller quantity because of the ________ effect and the ________ effect.

Accepted Answer

A)  substitution; income 
B)  normal; inferior 
C)  substitute; complement; 
D)  supply; demand

Question 17

A decrease in the demand for incandescent light bulbs due to changes in consumer tastes, accompanied by a decrease in the supply of incandescent light bulbs as a result of government restrictions, will result in

Accepted Answer

A)  a decrease in the equilibrium quantity of incandescent light bulbs and no change in the equilibrium price. 
B)  a decrease in the equilibrium price of incandescent light bulbs and no change in the equilibrium quantity. 
C)  a decrease in the equilibrium price of incandescent light bulbs; the equilibrium quantity may increase or decrease. 
D)  a decrease in the equilibrium quantity of incandescent light bulbs; the equilibrium price may increase or decrease.

Question 18

Figure 3-1 
-Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are

Accepted Answer

A)  substitutes in consumption. 
B)  both inferior goods. 
C)  complements in consumption. 
D)  both luxury goods.

Question 19

Indicate whether each of the following situations would shift the supply curve to the left, to the right, or not at all.
a. An increase in the number of firms in the market
b. An increase in the current price of the product
c. A decrease in productivity
d. An increase in the expected future price of a product
e. A decrease in the price of an input

Accepted Answer

The answer of Indicate whether each of the following situations...

Question 20

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see

Accepted Answer

A)  a surplus of gasoline. 
B)  the quantity demanded equal to the quantity supplied. 
C)  a shortage of gasoline. 
D)  an increase in the demand for gasoline.

Exam 3: Where Prices Come From: the Interaction of Demand and Supply

What is the difference between an "increase in demand" and an "increase in quantity demanded"?

Figure 3-5 -Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by

If a decrease in income leads to an increase in the demand for macaroni, then macaroni is

A shortage occurs when the market price is lower than the equilibrium price.

If a firm expects that the price of its product will be lower in the future than it is today

Which of the following would cause a decrease in the supply of milk?

Figure 3-1 -Refer to Figure 3-1. A decrease in the price of the product would be represented by a movement from

Figure 3-8 -Which of the following would cause an increase in the equilibrium price and an increase in the equilibrium quantity of watermelons?

Assume that the demand curve for DVD players shifts to the left and the supply curve for DVD players shifts to the right, but the supply curve shifts less than the demand curve. As a result

Table 3-1 -Refer to Table 3-1. The table above shows the demand schedules for loose-leaf tea of two individuals (Sunil and Mia) and the rest of the market. At a price of $5, the quantity demanded in the market would be

In 2004, hurricanes destroyed a large portion of Florida's orange and grapefruit crops. In the market for citrus fruit,

Suppose that when the price of hamburgers decreases, the Landry family decreases their purchases of chicken nuggets. To the Landry family,

Figure 3-2 -Refer to Figure 3-2. A decrease in the expected future price of the product would be represented by a movement from

When the price of a good rises, consumers buy a smaller quantity because of the effect and the effect.

A decrease in the demand for incandescent light bulbs due to changes in consumer tastes, accompanied by a decrease in the supply of incandescent light bulbs as a result of government restrictions, will result in

Figure 3-1 -Elvira decreased her consumption of bananas when the price of peanut butter increased. For Elvira, peanut butter and bananas are