Question 1

A firm produces volleyballs and soccer balls. What happens to the supply of soccer balls if the market price of volleyballs increases?

Accepted Answer

A)  The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls increases. 
B)  The opportunity cost of producing soccer balls falls, so the supply curve of soccer balls decreases. 
C)  The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls decreases. 
D)  The opportunity cost of producing soccer balls falls, so the supply curve of soccer balls increases. 
A)  The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls increases. 
B)  The opportunity cost of producing soccer balls falls, so the supply curve of soccer balls decreases. 
C)  The opportunity cost of producing soccer balls rises, so the supply curve of soccer balls decreases. 
D)  The opportunity cost of producing soccer balls falls, so the supply curve of soccer balls increases.

Question 2

Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?

Accepted Answer

A)  A report emerges that shows that drinking Pepsi helps to promote weight loss. 
B)  The price of Coke decreases. 
C)  The price of Pepsi rises. 
D)  The cost of making Pepsi rises. 
A)  A report emerges that shows that drinking Pepsi helps to promote weight loss. 
B)  The price of Coke decreases. 
C)  The price of Pepsi rises. 
D)  The cost of making Pepsi rises.

Question 3

When the price of oil used for generating electricity increases, the demand for nuclear power will increase.

Accepted Answer

A) True 
 B)False

Question 4

Recall your reading about NAFTA in the textbook. Why did the NAFTA agreement result in an increase in lumber supply in the United States?

Accepted Answer

A)  NAFTA decreed that the United States should produce more lumber. 
B)  NAFTA stands for North American Furniture Trade Agreement. 
C)  NAFTA reduced barriers to trade, allowing Canadian lumber to enter the United States. 
D)  The United States sold more lumber to CanadD. 
A)  NAFTA decreed that the United States should produce more lumber. 
B)  NAFTA stands for North American Furniture Trade Agreement. 
C)  NAFTA reduced barriers to trade, allowing Canadian lumber to enter the United States. 
D)  The United States sold more lumber to CanadD.

Question 5

A government subsidy causes the:

Accepted Answer

A)  supply of the product to increase. 
B)  supply of the product to decrease. 
C)  supply curve to change slope. 
D)  supply curve to shift up and to the left. 
A)  supply of the product to increase. 
B)  supply of the product to decrease. 
C)  supply curve to change slope. 
D)  supply curve to shift up and to the left.

Question 6

As the population of elderly in the United States increases:

Accepted Answer

A)  the supply and demand curves will both shift rightward. 
B)  the demand curve for certain products shifts rightward. 
C)  the supply curve will become vertical. 
D)  None of the answers is correct. 
A)  the supply and demand curves will both shift rightward. 
B)  the demand curve for certain products shifts rightward. 
C)  the supply curve will become vertical. 
D)  None of the answers is correct.

Question 7

Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is:

Accepted Answer

A)  $1.13. 
B)  $7. 
C)  $53. 
D)  $113. 
A)  $1.13. 
B)  $7. 
C)  $53. 
D)  $113.

Question 8

Throughout 2005, average home prices in the United States soared to record highs. Clearly those individuals who were purchasing homes were paying more for them. But what about the people who were not buying homes? In particular, were people who did NOT own homes affected by this housing bubble? Explain. (Hint: What impact did this substantial increase in the price of owner-occupied housing have on the price of rental housing?)

Accepted Answer

This substantial increase in the price o

Question 9

(Figure: Willingness to Pay) Refer to the figure. What is the maximum amount that buyers are willing to buy at a price of $45 per book?

Accepted Answer

A)  300 books 
B)  450 books 
C)  0 books 
D)  100 books 
A)  300 books 
B)  450 books 
C)  0 books 
D)  100 books

Question 10

Graph the demand curve and calculate consumer surplus at price of $2.

Accepted Answer

Consumer surplus = 0

Question 11

Quantity demanded is:

Accepted Answer

A)  the amount of a good or service that a buyer is able and willing to purchase at a given price. 
B)  the amount of a good or service that a buyer is able and willing to sell at a given price. 
C)  the amount of a good or service that a seller is able and willing to sell at a given price. 
D)  the amount of a good or service that a buyer is able and willing to purchase at various given prices. 
A)  the amount of a good or service that a buyer is able and willing to purchase at a given price. 
B)  the amount of a good or service that a buyer is able and willing to sell at a given price. 
C)  the amount of a good or service that a seller is able and willing to sell at a given price. 
D)  the amount of a good or service that a buyer is able and willing to purchase at various given prices.

Question 12

Suppose that consumers begin to believe that the price of housing will be lower next period. What will happen in the market for housing as a result of these expectations?

Accepted Answer

A)  Nothing will happen yet. Consumers will wait for the price to actually decrease before changing their behavior. 
B)  Demand for housing will increase, causing the price of housing to increase rather than fall. 
C)  Demand for housing will begin to fall, and the price of housing will decrease. 
D)  Demand for housing will begin to rise as investors believe they are getting a "deal." 
A)  Nothing will happen yet. Consumers will wait for the price to actually decrease before changing their behavior. 
B)  Demand for housing will increase, causing the price of housing to increase rather than fall. 
C)  Demand for housing will begin to fall, and the price of housing will decrease. 
D)  Demand for housing will begin to rise as investors believe they are getting a "deal."

Question 13

A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________.

Accepted Answer

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

Question 14

(Table: Maximum Willingness to Pay) The table shows four individuals' maximum willingness to pay for one pound of bananas. If the market price of bananas is $0.50/lb, what is the total consumer surplus in the market?

Accepted Answer

A)  $4.00 
B)  $2.50 
C)  $2.75 
D)  $4.25 
A)  $4.00 
B)  $2.50 
C)  $2.75 
D)  $4.25

Question 15

Which of the following are likely to be complements?

Accepted Answer

A)  hotdogs and hamburgers 
B)  books and book-lights 
C)  coffee and tea 
D)  cars and vans 
A)  hotdogs and hamburgers 
B)  books and book-lights 
C)  coffee and tea 
D)  cars and vans

Question 16

Suppose that Country X is a high-cost producer of oil and Country Y is a low-cost producer of oil. The citizens of Country X use both oil produced in their own country as well as oil produced in Country Y. If the market price of oil decreases, oil production in Country X will _______, and the citizens of Country X will _________________.

Accepted Answer

A)  decrease; purchase a larger fraction of their oil from Country Y 
B)  increase; purchase a larger fraction of their oil from Country X 
C)  decrease; not change their consumption mix between imported and domestic oil 
D)  increase; purchase a smaller fraction of their oil from Country Y 
A)  decrease; purchase a larger fraction of their oil from Country Y 
B)  increase; purchase a larger fraction of their oil from Country X 
C)  decrease; not change their consumption mix between imported and domestic oil 
D)  increase; purchase a smaller fraction of their oil from Country Y

Question 17

Producer surplus can be defined as the revenue producers make from selling goods in a market.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements about consumer surplus is incorrect?

Accepted Answer

A)  Consumer surplus is the net benefit to consumers from the exchange that occurs in a market. 
B)  Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. 
C)  Total consumer surplus is the area beneath the demand curve and above the market price. 
D)  Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price. 
A)  Consumer surplus is the net benefit to consumers from the exchange that occurs in a market. 
B)  Consumer surplus is the gains from trade on the part of the consumer that result from a market transaction. 
C)  Total consumer surplus is the area beneath the demand curve and above the market price. 
D)  Consumer surplus is the difference between the minimum price the consumer is willing to pay and the market price.

Question 19

New production technology in the manufacture of plasma television screens has reduced the number of defective screens. What effect will this have in the market for plasma televisions?

Accepted Answer

A)  The demand curve will increase. 
B)  The supply curve will increase. 
C)  The demand and supply curve both increase. 
D)  The demand curve will decrease. 
A)  The demand curve will increase. 
B)  The supply curve will increase. 
C)  The demand and supply curve both increase. 
D)  The demand curve will decrease.

Question 20

Which of the following choices correctly illustrates how changes in opportunity costs affect supply?

Accepted Answer

A)  A farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply of wheat rises. 
B)  A fisherman fishes for lobsters and oysters. The price of lobsters rises; so he decides to spend more of his time fishing for oysters because he can make the same amount of money with fewer lobsters. 
C)  A textbook for economics becomes cheaper; so more students opt to buy that particular textbook. 
D)  Milk and cereal are complementary goods; so when the price of cereal falls, the quantity supplied of milk rises. 
A)  A farmer produces corn and wheat. The price of wheat rises; so he shifts his resources towards wheat and the supply of wheat rises. 
B)  A fisherman fishes for lobsters and oysters. The price of lobsters rises; so he decides to spend more of his time fishing for oysters because he can make the same amount of money with fewer lobsters. 
C)  A textbook for economics becomes cheaper; so more students opt to buy that particular textbook. 
D)  Milk and cereal are complementary goods; so when the price of cereal falls, the quantity supplied of milk rises.

Exam 3: Business Fluctuations: Aggregate Demand and Supply

A firm produces volleyballs and soccer balls. What happens to the supply of soccer balls if the market price of volleyballs increases?

Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?

When the price of oil used for generating electricity increases, the demand for nuclear power will increase.

Recall your reading about NAFTA in the textbook. Why did the NAFTA agreement result in an increase in lumber supply in the United States?

A government subsidy causes the:

As the population of elderly in the United States increases:

Nigeria receives $53 of producer surplus from each barrel of oil sold at $60. At that level of production, Nigeria's cost to produce a barrel of oil is:

(Figure: Willingness to Pay) Refer to the figure. What is the maximum amount that buyers are willing to buy at a price of $45 per book?

Graph the demand curve and calculate consumer surplus at price of $2.

Quantity demanded is:

Suppose that consumers begin to believe that the price of housing will be lower next period. What will happen in the market for housing as a result of these expectations?

A decrease in income causes demand for a normal good to ________, and an increase in income causes demand for an inferior good to ________.

(Table: Maximum Willingness to Pay) The table shows four individuals' maximum willingness to pay for one pound of bananas. If the market price of bananas is $0.50/lb, what is the total consumer surplus in the market?

Which of the following are likely to be complements?

Producer surplus can be defined as the revenue producers make from selling goods in a market.

Which of the following statements about consumer surplus is incorrect?

New production technology in the manufacture of plasma television screens has reduced the number of defective screens. What effect will this have in the market for plasma televisions?

Which of the following choices correctly illustrates how changes in opportunity costs affect supply?

The Big Ideas in Economics

The Power of Trade and Comparative Advantage

Equilibrium: How Supply and Demand Determine Prices

Elasticity and Its Applications

Taxes and Subsidies

The Price System: Signals, Speculation, and Prediction

Price Ceilings and Floors

International Trade

Externalities: When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination and Pricing Strategy

Oligopoly and Game Theory

Competing for Monopoly: the Economics of Network Goods

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Asymmetric Information: Moral Hazard and Adverse Selection

Consumer Choice

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

Supply and Demand

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Transmission and Amplification Mechanisms

The Federal Reserve System and Open Market Operations

Monetary Policy

The Federal Budget: Taxes and Spending

Filters

A decrease in income causes demand for a normal good to , and an increase in income causes demand for an inferior good to .