Question 1

A normal good is a good for which the demand decreases as income decreases, holding everything else constant.

Accepted Answer

A) True 
 B)False

Question 2

Draw a demand curve and label it D1. On the graph, illustrate an increase in demand and a decrease in demand, and label the curves D2 and D3, respectively. Starting on demand curve D1, explain the shift that would result from each of the following events:
a. a decrease in income and the good is a normal good
b. a decrease in income and the good is an inferior good
c. an increase in the price of a substitute good
d. an increase in the price of a complementary good
e. a decrease in the taste for the good
f. an increase in population
g. a decrease in the expected future price of the good

Accepted Answer

@#IMG-DLM& a, d, e, and g would decrease

Question 3

Figure 3-1  
-Studies have shown links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium?

Accepted Answer

A)  The calcium supply curve shifts to the right because of a change in tastes in favor of calcium. 
B)  The calcium demand curve shifts to the right because of a change in tastes in favor of calcium. 
C)  The calcium demand curve shifts to the left because this new information will increase the price of calcium. 
D)  The calcium supply curve shifts to the left because this new information will increase the price of calcium. 
A)  The calcium supply curve shifts to the right because of a change in tastes in favor of calcium. 
B)  The calcium demand curve shifts to the right because of a change in tastes in favor of calcium. 
C)  The calcium demand curve shifts to the left because this new information will increase the price of calcium. 
D)  The calcium supply curve shifts to the left because this new information will increase the price of calcium.

Question 4

If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?

Accepted Answer

A)  The supply of Lincoln letters would have to be less than the supply of Booth letters. 
B)  The supply of Booth letters would have to be less than the supply of Lincoln letters. 
C)  The supply of Lincoln letters and the supply of Booth letters would have to be equal. 
D)  If the demand for Lincoln letters is greater than the demand for Booth letters, the market equilibrium price for Lincoln letters will always be greater than the market equilibrium price for Booth letters. 
A)  The supply of Lincoln letters would have to be less than the supply of Booth letters. 
B)  The supply of Booth letters would have to be less than the supply of Lincoln letters. 
C)  The supply of Lincoln letters and the supply of Booth letters would have to be equal. 
D)  If the demand for Lincoln letters is greater than the demand for Booth letters, the market equilibrium price for Lincoln letters will always be greater than the market equilibrium price for Booth letters.

Question 5

The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Accepted Answer

A) True 
 B)False

Question 6

Figure 3-8  
-Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S2 (point

Accepted Answer

A)  The equilibrium point will move from E to A. 
B)  The equilibrium point will move from E to B. 
C)  The equilibrium point will move from E to C. 
D)  The equilibrium point will remain at E. 
E) . If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change? 
A)  The equilibrium point will move from E to A. 
B)  The equilibrium point will move from E to B. 
C)  The equilibrium point will move from E to C. 
D)  The equilibrium point will remain at E. 
E) . If the technology to produce motorcycles improves and the number of buyers increases, how will the equilibrium point change?

Question 7

Figure 3-2  
-Refer to Figure 3-2. An increase in the 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. 
A)  A to B. 
B)  B to A. 
C)  S1 to S2. 
D)  S2 to S1.

Question 8

Figure 3-5  
-Refer to Figure 3-5. At a price of $20, the quantity sold

Accepted Answer

A)  is 0 units. 
B)  is 4 units. 
C)  is 8 units. 
D)  cannot be determined. 
A)  is 0 units. 
B)  is 4 units. 
C)  is 8 units. 
D)  cannot be determined.

Question 9

A change in all of the following variables will change the market demand for a product except

Accepted Answer

A)  the price of the product. 
B)  population and demographics. 
C)  income. 
D)  tastes. 
A)  the price of the product. 
B)  population and demographics. 
C)  income. 
D)  tastes.

Question 10

Which of the following would cause an increase in the supply of peanut butter?

Accepted Answer

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

Question 11

Figure 3-4  
-Refer to Figure 3-4. At a price of $20, how many units will be sold?

Accepted Answer

A)  400 
B)  500 
C)  600 
D)  800 
A)  400 
B)  500 
C)  600 
D)  800

Question 12

According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?

Accepted Answer

A)  The two goods are substitutes in consumption. 
B)  There is no relationship between the two goods. 
C)  The two goods are complements in consumption. 
D)  They are both luxury goods. 
A)  The two goods are substitutes in consumption. 
B)  There is no relationship between the two goods. 
C)  The two goods are complements in consumption. 
D)  They are both luxury goods.

Question 13

A decrease in the price of inputs will cause the supply curve for a product to shift to the right.

Accepted Answer

A) True 
 B)False

Question 14

The phrase "demand has decreased" means that

Accepted Answer

A)  a demand curve has shifted to the left. 
B)  there has been an upward movement along a demand curve. 
C)  there has been a downward movement along a demand curve. 
D)  a demand curve has shifted to the right. 
A)  a demand curve has shifted to the left. 
B)  there has been an upward movement along a demand curve. 
C)  there has been a downward movement along a demand curve. 
D)  a demand curve has shifted to the right.

Question 15

A positive technological change will cause the supply of a good to increase.

Accepted Answer

A) True 
 B)False

Question 16

An increase in the quantity of a product supplied is caused by an increase in the price of the product.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  the firm will go out of business. 
B)  the firm has an incentive to increase supply now and decrease supply in the future. 
C)  the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. 
D)  the firm has an incentive to decrease supply now and increase supply in the future. 
A)  the firm will go out of business. 
B)  the firm has an incentive to increase supply now and decrease supply in the future. 
C)  the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future. 
D)  the firm has an incentive to decrease supply now and increase supply in the future.

Question 18

Figure 3-5  
-Refer to Figure 3-5. In a free market such as that depicted above, a surplus 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. 
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 19

When deciding on which new products to develop, a firm must devote people, time, and money to designing a new product. Because any firm has only limited resources, it

Accepted Answer

A)  should wait until its competitors develop a similar product before deciding on devoting resources to its own product development. 
B)  is not able to develop more than one new product at a time. 
C)  must be certain that the product it chooses to develop will be successful or it will not be able to stay in business. 
D)  faces a trade-off because resources used to develop one product will not be available to develop another product. 
A)  should wait until its competitors develop a similar product before deciding on devoting resources to its own product development. 
B)  is not able to develop more than one new product at a time. 
C)  must be certain that the product it chooses to develop will be successful or it will not be able to stay in business. 
D)  faces a trade-off because resources used to develop one product will not be available to develop another product.

Question 20

Which of the following would cause a decrease in the supply of peanut butter?

Accepted Answer

A)  a decrease in the price of jelly (assuming that peanut butter and jelly are complements) 
B)  a decrease in the price of peanut butter 
C)  an increase the price of peanuts 
D)  an increase in the technology used to produce peanut butter 
A)  a decrease in the price of jelly (assuming that peanut butter and jelly are complements) 
B)  a decrease in the price of peanut butter 
C)  an increase the price of peanuts 
D)  an increase in the technology used to produce peanut butter

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

A normal good is a good for which the demand decreases as income decreases, holding everything else constant.

Figure 3-1 -Studies have shown links between calcium consumption and a reduction in osteoporosis. How does this affect the market for calcium?

If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?

The substitution effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Figure 3-8 -Refer to Figure 3-8. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D2 and S2 (point

Figure 3-2 -Refer to Figure 3-2. An increase in the price of the product would be represented by a movement from

Figure 3-5 -Refer to Figure 3-5. At a price of $20, the quantity sold

A change in all of the following variables will change the market demand for a product except

Which of the following would cause an increase in the supply of peanut butter?

Figure 3-4 -Refer to Figure 3-4. At a price of $20, how many units will be sold?

According to a recent study, "Stricter college alcohol policies, such as raising the price of alcohol, or banning alcohol on campus, decrease the number of students who use marijuana." On the basis of this information, how would you describe alcohol and marijuana?

A decrease in the price of inputs will cause the supply curve for a product to shift to the right.

The phrase "demand has decreased" means that

A positive technological change will cause the supply of a good to increase.

An increase in the quantity of a product supplied is caused by an increase in the price of the product.

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

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

When deciding on which new products to develop, a firm must devote people, time, and money to designing a new product. Because any firm has only limited resources, it

Which of the following would cause a decrease in the supply of peanut butter?

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Economic Efficiency, Government Price Setting, and Taxes

Externalities, Environmental Policy, and Public Goods

Elasticity: the Responsiveness of Demand and Supply

The Economics of Health Care

Firms, the Stock Market, and Corporate Governance

Comparative Advantage and the Gains From International Trade

Consumer Choice and Behavioral Economics

Technology, Production, and Costs

Firms in Perfectly Competitive Markets

Monopolistic Competition: the Competitive Model in a More Realistic Setting

Oligopoly: Firms in Less Competitive Markets

Monopoly and Antitrust Policy

Pricing Strategy

The Markets for Labor and Other Factors of Production

Public Choice, Taxes, and the Distribution of Income

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, the Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Federal Reserve System

Monetary Policy

Fiscal Policy

Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

The International Financial System

Filters