Question 1

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

Accepted Answer

A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller 
A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller

Question 2

Use the following to answer questions: Figure: Price and Quantity 1  
-(Figure: Price and Quantity 1) In the diagram, at a price of $40, the quantity demanded is ______, the quantity supplied is ______, and there is a ______.

Accepted Answer

A)  40; 60; surplus of 20 units 
B)  80; 20; shortage of 60 units 
C)  60; 40; shortage of 20 units 
D)  20; 60; surplus of 40 units 
A)  40; 60; surplus of 20 units 
B)  80; 20; shortage of 60 units 
C)  60; 40; shortage of 20 units 
D)  20; 60; surplus of 40 units

Question 3

Vernon Smith showed the market equilibrium concept to be:

Accepted Answer

A)  unrelated to experimental results. 
B)  inconsistent with experimental results. 
C)  consistent with experimental results. 
D)  not testable in experimental settings. 
A)  unrelated to experimental results. 
B)  inconsistent with experimental results. 
C)  consistent with experimental results. 
D)  not testable in experimental settings.

Question 4

When there is a shortage, sellers have an incentive to ______ their price and buyers have an incentive to offer a ______ price.

Accepted Answer

A)  increase; lower 
B)  decrease; lower 
C)  decrease; higher 
D)  increase; higher 
A)  increase; lower 
B)  decrease; lower 
C)  decrease; higher 
D)  increase; higher

Question 5

Why is the world unlikely to ever literally run out of oil?

Accepted Answer

A)  There is an unlimited supply of oil. 
B)  As the cheap-to-produce oil gets used up, the price of oil will rise, encouraging conservation and production using more expensive techniques. 
C)  The demand for oil is not very high. 
D)  As the demand for oil increases, the quantity supplied increases as well. 
A)  There is an unlimited supply of oil. 
B)  As the cheap-to-produce oil gets used up, the price of oil will rise, encouraging conservation and production using more expensive techniques. 
C)  The demand for oil is not very high. 
D)  As the demand for oil increases, the quantity supplied increases as well.

Question 6

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

Accepted Answer

A)  The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of those guitars on the used market. 
B)  The price for used Brazilian rosewood guitars will decrease as fewer people decide to sell their rosewood guitars. 
C)  The price of used Brazilian rosewood guitars will increase at first and then decrease, since an increase in demand raises prices, causing people to buy less of the product. 
D)  The price for used Brazilian rosewood guitars will increase as more people try to cash in by selling their increasingly rare rosewood guitars. 
A)  The price for used Brazilian rosewood guitars will increase because there will be a smaller supply of those guitars on the used market. 
B)  The price for used Brazilian rosewood guitars will decrease as fewer people decide to sell their rosewood guitars. 
C)  The price of used Brazilian rosewood guitars will increase at first and then decrease, since an increase in demand raises prices, causing people to buy less of the product. 
D)  The price for used Brazilian rosewood guitars will increase as more people try to cash in by selling their increasingly rare rosewood guitars.

Question 7

If the market price is below the equilibrium price, which of the following will occur?

Accepted Answer

A)  Quantity demanded will exceed quantity supplied and the market price will eventually fall. 
B)  Quantity demanded will exceed quantity supplied and the market price will eventually rise. 
C)  Quantity supplied will exceed quantity demanded and the market price will eventually fall. 
D)  Quantity supplied will exceed quantity demanded and the market price will eventually rise. 
A)  Quantity demanded will exceed quantity supplied and the market price will eventually fall. 
B)  Quantity demanded will exceed quantity supplied and the market price will eventually rise. 
C)  Quantity supplied will exceed quantity demanded and the market price will eventually fall. 
D)  Quantity supplied will exceed quantity demanded and the market price will eventually rise.

Question 8

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied.

Accepted Answer

A) True 
 B)False

Question 9

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 10

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

Accepted Answer

A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller 
A)  larger 
B)  smaller 
C)  the same 
D)  either larger or smaller

Question 11

The equilibrium price is unstable because sellers have an incentive to lower their price to sell more goods.

Accepted Answer

A) True 
 B)False

Question 12

In a free market when there are unexploited gains from trade:

Accepted Answer

A)  the market is slow to adjust to this situation. 
B)  there are sellers who are unwilling to sell at prices buyers are willing to pay. 
C)  there are buyers who are willing to pay more for goods than sellers are asking. 
D)  an equilibrium price and quantity have been reached. 
A)  the market is slow to adjust to this situation. 
B)  there are sellers who are unwilling to sell at prices buyers are willing to pay. 
C)  there are buyers who are willing to pay more for goods than sellers are asking. 
D)  an equilibrium price and quantity have been reached.

Question 13

The price of professional sports tickets is high; therefore, you should blame the owners for taking advantage of the fans, not the other buyers for outbidding you.

Accepted Answer

A) True 
 B)False

Question 14

Imagine a free market in which at a price of $10, quantity supplied is 40 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 15

The equilibrium price is:

Accepted Answer

A)  stable because at this price the quantity demanded equals the quantity supplied. 
B)  unstable because at this price the quantity demanded is less than the quantity supplied. 
C)  unstable because at this price the quantity demanded exceeds the quantity supplied. 
D)  stable because at this price all buyers are willing and able to pay. 
A)  stable because at this price the quantity demanded equals the quantity supplied. 
B)  unstable because at this price the quantity demanded is less than the quantity supplied. 
C)  unstable because at this price the quantity demanded exceeds the quantity supplied. 
D)  stable because at this price all buyers are willing and able to pay.

Question 16

At the free market equilibrium, the quantity demanded minus the quantity supplied equals zero.

Accepted Answer

A) True 
 B)False

Question 17

What is the difference between a shift in the demand curve and a movement along the demand curve?

Accepted Answer

A)  A shift is a reaction to a movement along the demand curve. 
B)  A shift implies a change in the whole demand curve; a movement does not. 
C)  A shift conveys a change in the opportunity cost; a movement does not. 
D)  A shift creates a new equilibrium price; a movement creates a new equilibrium quantity. 
A)  A shift is a reaction to a movement along the demand curve. 
B)  A shift implies a change in the whole demand curve; a movement does not. 
C)  A shift conveys a change in the opportunity cost; a movement does not. 
D)  A shift creates a new equilibrium price; a movement creates a new equilibrium quantity.

Question 18

How did the spread of the Internet affect the market for news (regardless of source)?

Accepted Answer

A)  Demand increased, causing the price to rise. 
B)  Demand decreased, causing the price to fall. 
C)  Supply decreased, causing the price to rise. 
D)  Supply increased, causing the price to fall. 
A)  Demand increased, causing the price to rise. 
B)  Demand decreased, causing the price to fall. 
C)  Supply decreased, causing the price to rise. 
D)  Supply increased, causing the price to fall.

Question 19

Consumers who traded in a used car for a new vehicle under the Cash-for-Clunkers program received a voucher worth up to $4,500 to offset the price of the consumer's new vehicle. What effect did that program's requirement to destroy all trade-in cars have on the market for used cars?

Accepted Answer

A)  The supply of used cars increased, decreasing the price of used cars. 
B)  The supply of used cards decreased, increasing the price of used cars. 
C)  The demand for used cars increased, increasing the price of used cars. 
D)  The demand for used cars decreased, decreasing the price of used cars. 
A)  The supply of used cars increased, decreasing the price of used cars. 
B)  The supply of used cards decreased, increasing the price of used cars. 
C)  The demand for used cars increased, increasing the price of used cars. 
D)  The demand for used cars decreased, decreasing the price of used cars.

Question 20

Economic growth in China has led to more Chinese people owning cars, which:

Accepted Answer

A)  increased demand for oil, causing oil prices to rise. 
B)  decreased demand for oil, causing oil prices to rise. 
C)  increased demand for oil but decreased supply, causing oil prices to increase rapidly. 
D)  increased demand and supply of oil, causing oil prices to increase rapidly. 
A)  increased demand for oil, causing oil prices to rise. 
B)  decreased demand for oil, causing oil prices to rise. 
C)  increased demand for oil but decreased supply, causing oil prices to increase rapidly. 
D)  increased demand and supply of oil, causing oil prices to increase rapidly.

Exam 4: Equilibrium: How Supply and Demand Determine Prices

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

Use the following to answer questions: Figure: Price and Quantity 1 -(Figure: Price and Quantity 1) In the diagram, at a price of $40, the quantity demanded is ______, the quantity supplied is ______, and there is a ______.

Vernon Smith showed the market equilibrium concept to be:

When there is a shortage, sellers have an incentive to ______ their price and buyers have an incentive to offer a ______ price.

Why is the world unlikely to ever literally run out of oil?

Brazilian rosewood is renowned for its tonal qualities and gorgeous figuring on acoustic guitars. However, Brazilian rosewood is now banned from use in the construction of new guitars. What will likely happen to the price of used Brazilian rosewood guitars over time?

If the market price is below the equilibrium price, which of the following will occur?

A decrease in demand for a good will lead to a decrease in the price of the good, but an increase in the quantity supplied.

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

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

The equilibrium price is unstable because sellers have an incentive to lower their price to sell more goods.

In a free market when there are unexploited gains from trade:

The price of professional sports tickets is high; therefore, you should blame the owners for taking advantage of the fans, not the other buyers for outbidding you.

Imagine a free market in which at a price of $10, quantity supplied is 40 units and quantity demanded is 50 units. Equilibrium price in this market:

The equilibrium price is:

At the free market equilibrium, the quantity demanded minus the quantity supplied equals zero.

What is the difference between a shift in the demand curve and a movement along the demand curve?

How did the spread of the Internet affect the market for news (regardless of source)?

Consumers who traded in a used car for a new vehicle under the Cash-for-Clunkers program received a voucher worth up to $4,500 to offset the price of the consumer's new vehicle. What effect did that program's requirement to destroy all trade-in cars have on the market for used cars?

Economic growth in China has led to more Chinese people owning cars, which:

The Big Ideas

The Power of Trade and Comparative Advantage

Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth, Capital Accumulation and the Economics of Ideas: Catching up Vs the Cutting Edge

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: Aggregate Demand and Supply

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

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: Price and Quantity 1 -(Figure: Price and Quantity 1) In the diagram, at a price of $40, the quantity demanded is , the quantity supplied is , and there is a __.

When there is a shortage, sellers have an incentive to their price and buyers have an incentive to offer a price.