Question 1

If demand increases, 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

It costs suppliers $1 to produce each additional widget, and widgets sell for $2. Some consumers are not willing to pay $2 for a widget but are nevertheless willing to pay more than $1. Which of the following statements is TRUE?

Accepted Answer

A)  The market is at equilibrium. 
B)  Suppliers must be reaping big profits. 
C)  There are unexploited gains from trade. 
D)  Consumers will bid up prices. 
A)  The market is at equilibrium. 
B)  Suppliers must be reaping big profits. 
C)  There are unexploited gains from trade. 
D)  Consumers will bid up prices.

Question 3

Which of the following would increase the demand for beef?

Accepted Answer

A)  lower pork prices 
B)  higher consumer income 
C)  higher prices of feed grains used to feed beef cattle 
D)  an increase in the price of beef 
A)  lower pork prices 
B)  higher consumer income 
C)  higher prices of feed grains used to feed beef cattle 
D)  an increase in the price of beef

Question 4

In free markets, surpluses lead to:

Accepted Answer

A)  lower prices. 
B)  higher prices. 
C)  stable prices. 
D)  unexploited gains from trade. 
A)  lower prices. 
B)  higher prices. 
C)  stable prices. 
D)  unexploited gains from trade.

Question 5

Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?

Accepted Answer

A)  This is evidence against the supply and demand model. 
B)  Demand has increased by more than supply increased, raising prices. 
C)  Prices always rise when supply shifts down and to the right. 
D)  Oil is one of the few commodities that do not follow the supply and demand model. 
A)  This is evidence against the supply and demand model. 
B)  Demand has increased by more than supply increased, raising prices. 
C)  Prices always rise when supply shifts down and to the right. 
D)  Oil is one of the few commodities that do not follow the supply and demand model.

Question 6

Surpluses drive price up while shortages drive price down.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in supply raises the price of a good, but it also decreases the quantity demanded, which lowers the price of a good. The net effect on price is ambiguous.

Accepted Answer

A) True 
 B)False

Question 8

Draw a market demand curve and market supply curve for automobiles and label these curves D1 and S1, respectively. (Be sure to label all axes!) On the same graph, show what would happen if the auto workers union required all manufacturers of automobiles to now provide health insurance for ALL workers and their dependents. (Note: Assume that prior to this change, manufacturers of automobiles do NOT provide health insurance coverage to 100 percent of their employees and/or their dependents.) What do you expect to happen to the price of automobiles as a result of this change in union policy?

Accepted Answer

The supply curve for automobil

Question 9

An increase in the quantity supplied causes the supply curve to shift down and to the right.

Accepted Answer

A) True 
 B)False

Question 10

The equilibrium price and quantity are the only price and quantity that are stable in a free market.

Accepted Answer

A) True 
 B)False

Question 11

Which choice explains how the OPEC crisis of 1973 affected oil prices?

Accepted Answer

A)  The supply of oil was reduced, leading to a rise in oil prices. 
B)  The supply of oil was increased, leading to a fall in oil prices. 
C)  The demand for oil increased, leading to a rise in oil prices. 
D)  The demand for oil decreased, leading to a fall in oil prices. 
A)  The supply of oil was reduced, leading to a rise in oil prices. 
B)  The supply of oil was increased, leading to a fall in oil prices. 
C)  The demand for oil increased, leading to a rise in oil prices. 
D)  The demand for oil decreased, leading to a fall in oil prices.

Question 12

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

Accepted Answer

A)  higher 
B)  lower 
C)  the same 
D)  either higher or lower 
A)  higher 
B)  lower 
C)  the same 
D)  either higher or lower

Question 13

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve.

Accepted Answer

A) True 
 B)False

Question 14

If hipsters decide that Pabst Blue Ribbon has become cliché and they seek out a more iconic beverage, what will happen in the market for PBR?

Accepted Answer

A)  Demand will decrease, quantity demanded will decrease, and price will increase. 
B)  Supply will decrease, quantity demanded will decrease, and price will decrease. 
C)  Demand will decrease, quantity supplied will decrease, and price will decrease. 
D)  Demand will decrease, quantity supplied will increase, and price will decrease. 
A)  Demand will decrease, quantity demanded will decrease, and price will increase. 
B)  Supply will decrease, quantity demanded will decrease, and price will decrease. 
C)  Demand will decrease, quantity supplied will decrease, and price will decrease. 
D)  Demand will decrease, quantity supplied will increase, and price will decrease.

Question 15

Use the following to answer questions: Figure: Gains from Trade  
-(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Accepted Answer

A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500 
A)  $1,000 
B)  $500 
C)  $0 
D)  $1,500

Question 16

Figure: Four Panel 3   Which of the panels shows the effect of a negative supply shock?

Accepted Answer

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

Question 17

Use the following to answer questions: Table: Equilibrium Price, Quantity $$\begin{array} { c c c } 
\hline \boldsymbol { P } & \boldsymbol { Q } _ { \mathbf { d } } & \boldsymbol { Q } _ { \mathbf { s } } \
\hline \$ 10 & 50 & 30 \
12 & 45 & 35 \
14 & 40 & 40 \
16 & 35 & 45 \
18 & 30 & 50 \
\hline
\end{array}$$
-(Table: Equilibrium Price, Quantity) Refer to the table. If the demand curve for the product shifted to the right such that 10 more units of the good are demanded at every price, what is the new equilibrium price?

Accepted Answer

A)  $12 
B)  $14 
C)  $16 
D)  $18 
A)  $12 
B)  $14 
C)  $16 
D)  $18

Question 18

The equilibrium price is:

Accepted Answer

A)  the price at which quantity demanded is equal to quantity supplied. 
B)  never higher than what most consumers are willing to pay. 
C)  unstable. 
D)  the highest price at which all consumers can afford a good. 
A)  the price at which quantity demanded is equal to quantity supplied. 
B)  never higher than what most consumers are willing to pay. 
C)  unstable. 
D)  the highest price at which all consumers can afford a good.

Question 19

Use the following to answer questions: Figure: Market Changes  
-(Figure: Market Changes) Refer to the figures. If these figures represent the market for asparagus, which figure shows the effect of a new disease-resistant asparagus seed?

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 20

Consider the market for electric guitars, a normal good. Use well-labeled supply and demand diagrams to illustrate the effects of the following events on the market for electric guitars.
a. Consumer income increases.
b. The price of wood increases.
c. The price of electric amplifiers decreases.
d. There is a decrease in the price of bass guitars, a substitute for electric guitars.
e. The government eliminates taxes on the producers of electric guitars.
f. Many new electric guitar companies are started by an influx of immigrants.

Accepted Answer

The answer of Consider the market for electric guitars, a...

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

It costs suppliers $1 to produce each additional widget, and widgets sell for $2. Some consumers are not willing to pay $2 for a widget but are nevertheless willing to pay more than $1. Which of the following statements is TRUE?

Which of the following would increase the demand for beef?

In free markets, surpluses lead to:

Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?

Surpluses drive price up while shortages drive price down.

A decrease in supply raises the price of a good, but it also decreases the quantity demanded, which lowers the price of a good. The net effect on price is ambiguous.

An increase in the quantity supplied causes the supply curve to shift down and to the right.

The equilibrium price and quantity are the only price and quantity that are stable in a free market.

Which choice explains how the OPEC crisis of 1973 affected oil prices?

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

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve.

If hipsters decide that Pabst Blue Ribbon has become cliché and they seek out a more iconic beverage, what will happen in the market for PBR?

Use the following to answer questions: Figure: Gains from Trade -(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Figure: Four Panel 3 Which of the panels shows the effect of a negative supply shock?

The equilibrium price is:

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If these figures represent the market for asparagus, which figure shows the effect of a new disease-resistant asparagus seed?

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

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

It costs suppliers $1 to produce each additional widget, and widgets sell for $2. Some consumers are not willing to pay $2 for a widget but are nevertheless willing to pay more than $1. Which of the following statements is TRUE?

Which of the following would increase the demand for beef?

In free markets, surpluses lead to:

Since improved technology continually lowers the cost of discovering and producing oil, how can rising oil prices in recent years be explained?

Surpluses drive price up while shortages drive price down.

A decrease in supply raises the price of a good, but it also decreases the quantity demanded, which lowers the price of a good. The net effect on price is ambiguous.

An increase in the quantity supplied causes the supply curve to shift down and to the right.

The equilibrium price and quantity are the only price and quantity that are stable in a free market.

Which choice explains how the OPEC crisis of 1973 affected oil prices?

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

An increase in quantity demanded is a movement along a fixed demand curve caused by a shift in the supply curve.

If hipsters decide that Pabst Blue Ribbon has become cliché and they seek out a more iconic beverage, what will happen in the market for PBR?

Use the following to answer questions: Figure: Gains from Trade -(Figure: Gains from Trade) Refer to the figure. What are the total gains from trade at the free market equilibrium?

Figure: Four Panel 3 Which of the panels shows the effect of a negative supply shock?

The equilibrium price is:

Use the following to answer questions: Figure: Market Changes -(Figure: Market Changes) Refer to the figures. If these figures represent the market for asparagus, which figure shows the effect of a new disease-resistant asparagus seed?

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