Question 1

In a free market, gains from trade are maximized when people act in their own self-interest.

Accepted Answer

A) True 
 B)False

Question 2

What can cause both equilibrium price and quantity to increase?

Accepted Answer

A)  an increase in the price of a complement good 
B)  a decrease in the population 
C)  consumer tastes becoming more favorable toward the good 
D)  an increase in the number of sellers 
A)  an increase in the price of a complement good 
B)  a decrease in the population 
C)  consumer tastes becoming more favorable toward the good 
D)  an increase in the number of sellers

Question 3

Economic experiments suggest that the real world closely follows theoretical supply and demand.

Accepted Answer

A) True 
 B)False

Question 4

When there is a surplus, 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)  increase; higher 
D)  decrease; higher 
A)  increase; lower 
B)  decrease; lower 
C)  increase; higher 
D)  decrease; higher

Question 5

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

Accepted Answer

A) True 
 B)False

Question 6

When a shortage occurs, the market price increases.

Accepted Answer

A) True 
 B)False

Question 7

Use the following to answer questions: Figure: Basic Supply and Demand  
-(Figure: Basic Supply and Demand) In the diagram, if the market price is $2, then there is a:

Accepted Answer

A)  surplus of 60 units. 
B)  surplus of 20 units. 
C)  shortage of 20 units. 
D)  market equilibrium. 
A)  surplus of 60 units. 
B)  surplus of 20 units. 
C)  shortage of 20 units. 
D)  market equilibrium.

Question 8

Use the following to answer questions: Table: Equilibrium Adjustment $$\begin{array} { c c c } 
\hline \text { Price } & \text { Quantity Demanded } & \text { Quantity Supplied } \
\hline \$ 10 & 100 & 160 \
8 & 120 & 145 \
6 & 130 & 130 \
4 & 140 & 115 \
2 & 150 & 100 \
\hline
\end{array}$$
-(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a:

Accepted Answer

A)  surplus of 50 units would exist, and price would fall. 
B)  surplus of 50 units would exist, and price would rise. 
C)  shortage of 50 units would exist, and price would rise. 
D)  shortage of 50 units would exist, and price would fall. 
A)  surplus of 50 units would exist, and price would fall. 
B)  surplus of 50 units would exist, and price would rise. 
C)  shortage of 50 units would exist, and price would rise. 
D)  shortage of 50 units would exist, and price would fall.

Question 9

A free market can be described by the equations Qd = 100 - P and Qs = -20 + P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q), and what are the maximum gains from trade in this market?

Accepted Answer

Price is $60, and eq

Question 10

Use the following to answer questions: Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

Accepted Answer

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

Question 11

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

Accepted Answer

A)  The equilibrium price decreases; the change in the equilibrium quantity is uncertain. 
B)  The equilibrium price decreases; the equilibrium quantity increases. 
C)  The equilibrium price increases; the change in the equilibrium quantity is uncertain. 
D)  The equilibrium price increases; the equilibrium quantity decreases. 
A)  The equilibrium price decreases; the change in the equilibrium quantity is uncertain. 
B)  The equilibrium price decreases; the equilibrium quantity increases. 
C)  The equilibrium price increases; the change in the equilibrium quantity is uncertain. 
D)  The equilibrium price increases; the equilibrium quantity decreases.

Question 12

When there is a recession, the price of oil tends to fall because:

Accepted Answer

A)  people drive more during recessions while looking for employment. 
B)  the supply of oil increases during a recession, due to technological change. 
C)  the prices of substitutes for oil rise during recessions. 
D)  incomes fall during a recession, and oil is a normal good. 
A)  people drive more during recessions while looking for employment. 
B)  the supply of oil increases during a recession, due to technological change. 
C)  the prices of substitutes for oil rise during recessions. 
D)  incomes fall during a recession, and oil is a normal good.

Question 13

Use the following to answer questions: Figure: Demand, Supply Shifts  
-(Figure: Demand, Supply Shifts) In the figure, the initial demand curve is D1 and the initial supply curve is S1. Suppose this depicts the market for corn. How does the market change when flooding in Iowa destroys a significant amount of the corn crop.

Accepted Answer

A)  S1 will shift to S2. 
B)  D1 will shift to D2. 
C)  S1 will shift to S3. 
D)  There will be no change in supply or demand in the market for corn. 
A)  S1 will shift to S2. 
B)  D1 will shift to D2. 
C)  S1 will shift to S3. 
D)  There will be no change in supply or demand in the market for corn.

Question 14

Imagine a free market in which quantity supplied is 40 units and quantity demanded is 50 units at the current price. The market is experiencing a(n):

Accepted Answer

A)  equilibrium. 
B)  surplus. 
C)  shortage. 
D)  shift. 
A)  equilibrium. 
B)  surplus. 
C)  shortage. 
D)  shift.

Question 15

A surplus occurs when:

Accepted Answer

A)  workers are more productive than expected. 
B)  the quantity supplied is greater than the quantity demanded. 
C)  more people want to buy a good than want to sell it. 
D)  a market is at equilibrium. 
A)  workers are more productive than expected. 
B)  the quantity supplied is greater than the quantity demanded. 
C)  more people want to buy a good than want to sell it. 
D)  a market is at equilibrium.

Question 16

The price of gasoline decreased dramatically in the summer of 2009. One likely reason for this change is:

Accepted Answer

A)  a shortage in the supply of oil worldwide. 
B)  riots in the Middle East that disrupted oil shipments. 
C)  a decrease in the demand for gasoline brought on by the recession. 
D)  strong economic growth in China that increased the demand for automobiles. 
A)  a shortage in the supply of oil worldwide. 
B)  riots in the Middle East that disrupted oil shipments. 
C)  a decrease in the demand for gasoline brought on by the recession. 
D)  strong economic growth in China that increased the demand for automobiles.

Question 17

If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?

Accepted Answer

A)  The price of oil would rise because of the competition from the new energy source. 
B)  The supply of oil would decrease because few suppliers can profitably produce oil at $10 a barrel. 
C)  There would be no effect on the market for oil. 
D)  Demand for oil would decrease over time since no one would pay more than $10 for a barrel of oil to produce energy. 
A)  The price of oil would rise because of the competition from the new energy source. 
B)  The supply of oil would decrease because few suppliers can profitably produce oil at $10 a barrel. 
C)  There would be no effect on the market for oil. 
D)  Demand for oil would decrease over time since no one would pay more than $10 for a barrel of oil to produce energy.

Question 18

In a free market in which an equilibrium price and quantity prevails:

Accepted Answer

A)  consumer surplus is less than producer surplus. 
B)  consumer surplus is greater than producer surplus. 
C)  consumer surplus is the same as producer surplus. 
D)  consumer surplus and producer surplus are maximized. 
A)  consumer surplus is less than producer surplus. 
B)  consumer surplus is greater than producer surplus. 
C)  consumer surplus is the same as producer surplus. 
D)  consumer surplus and producer surplus are maximized.

Question 19

Use the following to answer questions: Figure: Price and Quantity 1  
-(Figure: Price and Quantity 1) In the diagram, at which price is quantity demanded equal to the quantity supplied?

Accepted Answer

A)  $40 
B)  $50 
C)  $60 
D)  $80 
A)  $40 
B)  $50 
C)  $60 
D)  $80

Question 20

There is a positive relationship between price and quantity demanded.

Accepted Answer

A) True 
 B)False

In a free market, gains from trade are maximized when people act in their own self-interest.

What can cause both equilibrium price and quantity to increase?

Economic experiments suggest that the real world closely follows theoretical supply and demand.

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

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

When a shortage occurs, the market price increases.

Use the following to answer questions: Figure: Basic Supply and Demand -(Figure: Basic Supply and Demand) In the diagram, if the market price is $2, then there is a:

Use the following to answer questions: Table: Equilibrium Adjustment Price Quantity Demanded Quantity Supplied \ 10 100 160 8 120 145 6 130 130 4 140 115 2 150 100 -(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a:

A free market can be described by the equations Q_d = 100 - P and Q_s = -20 + P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q), and what are the maximum gains from trade in this market?

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

When there is a recession, the price of oil tends to fall because:

Imagine a free market in which quantity supplied is 40 units and quantity demanded is 50 units at the current price. The market is experiencing a(n):

A surplus occurs when:

The price of gasoline decreased dramatically in the summer of 2009. One likely reason for this change is:

If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?

In a free market in which an equilibrium price and quantity prevails:

Use the following to answer questions: Figure: Price and Quantity 1 -(Figure: Price and Quantity 1) In the diagram, at which price is quantity demanded equal to the quantity supplied?

There is a positive relationship between price and quantity demanded.

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

Exam 4: Equilibrium: How Supply and Demand Determine Prices

In a free market, gains from trade are maximized when people act in their own self-interest.

What can cause both equilibrium price and quantity to increase?

Economic experiments suggest that the real world closely follows theoretical supply and demand.

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

In a free market equilibrium, the gains from trade are always greater for consumers than for producers.

When a shortage occurs, the market price increases.

Use the following to answer questions: Figure: Basic Supply and Demand -(Figure: Basic Supply and Demand) In the diagram, if the market price is $2, then there is a:

Use the following to answer questions: Table: Equilibrium Adjustment Price Quantity Demanded Quantity Supplied \ 10 100 160 8 120 145 6 130 130 4 140 115 2 150 100 -(Table: Equilibrium Adjustment) Refer to the table. If the price in the free market is $2, then a:

A free market can be described by the equations Qd = 100 - P and Qs = -20 + P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q), and what are the maximum gains from trade in this market?

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If the figures represent the market for wool sweaters, which figure shows the effect of an unseasonably warm winter?

An increase in supply and a decrease in demand occur in a market. What happens to the equilibrium price and quantity?

When there is a recession, the price of oil tends to fall because:

Imagine a free market in which quantity supplied is 40 units and quantity demanded is 50 units at the current price. The market is experiencing a(n):

A surplus occurs when:

The price of gasoline decreased dramatically in the summer of 2009. One likely reason for this change is:

If scientists discover a new form of energy that cuts the cost of producing electricity to the equivalent of $10 a barrel, what will happen to the market for oil?

In a free market in which an equilibrium price and quantity prevails:

Use the following to answer questions: Figure: Price and Quantity 1 -(Figure: Price and Quantity 1) In the diagram, at which price is quantity demanded equal to the quantity supplied?

There is a positive relationship between price and quantity demanded.

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

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

A free market can be described by the equations Q_d = 100 - P and Q_s = -20 + P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q), and what are the maximum gains from trade in this market?