Question 1

A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

Accepted Answer

A) True 
 B)False

Question 2

George Gnat subscribes to a monthly pest control service for his home.Last week the owner of the service informed George that he will have to raise his monthly service fee because of increases in the price of gasoline used by his workers on their service trips.How is the market for pest control services affected by this?

Accepted Answer

A) There is an increase in the supply of pest control services. 
B) There is a decrease in the demand for pest control services. 
C) There is a decrease in the quantity of pest control services supplied. 
D) There is a decrease in the supply of pest control services. 
A) There is an increase in the supply of pest control services. 
B) There is a decrease in the demand for pest control services. 
C) There is a decrease in the quantity of pest control services supplied. 
D) There is a decrease in the supply of pest control services.

Question 3

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 4

Figure 3-8  
-Refer to Figure 3-8.The graph in this figure illustrates an initial competitive equilibrium in the market for sugar at the intersection of D1 and S2 (point B).If there is an decrease in the price of fertilizer used on sugar cane and there is a decrease in tastes for sugar-sweetened soft drinks,how will the equilibrium point change?

Accepted Answer

A) The equilibrium point will move from B to A. 
B) The equilibrium point will move from B to C. 
C) There will be no change in the equilibrium point. 
D) The equilibrium point will move from B to E. 
A) The equilibrium point will move from B to A. 
B) The equilibrium point will move from B to C. 
C) There will be no change in the equilibrium point. 
D) The equilibrium point will move from B to E.

Question 5

If the price of beef jerky rises,the substitution effect due to the price change will cause

Accepted Answer

A) an increase in the demand for beef jerky. 
B) an increase in the demand for hot sauce,a complement for beef jerky. 
C) an increase in the quantity of beef jerky demanded. 
D) a decrease in the quantity of beef jerky demanded. 
A) an increase in the demand for beef jerky. 
B) an increase in the demand for hot sauce,a complement for beef jerky. 
C) an increase in the quantity of beef jerky demanded. 
D) a decrease in the quantity of beef jerky demanded.

Question 6

Table 3-2
 $$\begin{array} { | c | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Caviar } \
\text { Price per oz. } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Ari's } \
\text { Quantity } \
\text { Demanded } \
\text { (oz.) }
\end{array} & \begin{array} { c } 
\text { Sonia's } \
\text { Quantity } \
\text { Demanded } \
\text { (oz.) }
\end{array} & \begin{array} { c } 
\text { Rest of } \
\text { Market } \
\text { Quantity } \
\text { Demanded } \
\text { (oz.) }
\end{array} & \begin{array} { c } 
\text { Market } \
\text { Quantity } \
\text { Demanded } \
\text { (oz.) }
\end{array} \
\hline \$ 75 & 6 & 0 & 46 & \
\hline 65 & 18 & 6 & 64 & \
\hline 55 & 28 & 14 & 136 & \
\hline 45 & 36 & 24 & 170 & \
\hline 35 & 44 & 36 & 220 & \
\hline
\end{array}$$
-Refer to Table 3-2.The table above shows the demand schedules for caviar of two individuals (Ari and Sonia)and the rest of the market.If the price of caviar rises from $65 to $75,the market quantity demanded would

Accepted Answer

A) decrease by 36 oz. 
B) increase by 52 oz. 
C) increase by 36 oz. 
D) decrease by 52 oz. 
A) decrease by 36 oz. 
B) increase by 52 oz. 
C) increase by 36 oz. 
D) decrease by 52 oz.

Question 7

A change in supply is represented by a shift of the supply curve.

Accepted Answer

A) True 
 B)False

Question 8

Elvira decreased her consumption of bananas when the price of peanut butter increased.For Elvira,peanut butter and bananas are

Accepted Answer

A) substitutes in consumption. 
B) both inferior goods. 
C) complements in consumption. 
D) both luxury goods. 
A) substitutes in consumption. 
B) both inferior goods. 
C) complements in consumption. 
D) both luxury goods.

Question 9

If a demand curve shifts to the left,then

Accepted Answer

A) demand has increased. 
B) quantity demanded has increased. 
C) demand has decreased. 
D) quantity demanded has decreased. 
A) demand has increased. 
B) quantity demanded has increased. 
C) demand has decreased. 
D) quantity demanded has decreased.

Question 10

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005.As a result of this,many gasoline distributors were not able to maintain normal deliveries.At the pre-hurricane equilibrium price (i.e. ,at the initial equilibrium price),we would expect to see

Accepted Answer

A) a surplus of gasoline. 
B) the quantity demanded equal to the quantity supplied. 
C) a shortage of gasoline. 
D) an increase in the demand for gasoline. 
A) a surplus of gasoline. 
B) the quantity demanded equal to the quantity supplied. 
C) a shortage of gasoline. 
D) an increase in the demand for gasoline.

Question 11

One would speak of a change in the quantity of a good supplied,rather than a change in supply,if

Accepted Answer

A) supplier expectations about future prices change. 
B) the price of the good changes. 
C) the cost of producing the good changes. 
D) prices of substitutes in production change. 
A) supplier expectations about future prices change. 
B) the price of the good changes. 
C) the cost of producing the good changes. 
D) prices of substitutes in production change.

Question 12

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 S1 (point C).Which of the following changes would cause the equilibrium to change to point B?

Accepted Answer

A) a positive change in the technology used to produce motorcycles and decrease in the price of motorcycle insurance,a complement to motorcycles 
B) an increase in the wages of motorcycle workers and a decrease in the price of motorcycle insurance,a complement to motorcycles 
C) an increase in the number of motorcycle producers and an increase in the number of consumers who prefer riding motorcycles 
D) an increase in the wages of motorcycle workers and an increase in the price of motorcycle insurance,a complement to motorcycles 
A) a positive change in the technology used to produce motorcycles and decrease in the price of motorcycle insurance,a complement to motorcycles 
B) an increase in the wages of motorcycle workers and a decrease in the price of motorcycle insurance,a complement to motorcycles 
C) an increase in the number of motorcycle producers and an increase in the number of consumers who prefer riding motorcycles 
D) an increase in the wages of motorcycle workers and an increase in the price of motorcycle insurance,a complement to motorcycles

Question 13

If the demand for a product decreases and the supply of the same product decreases,the equilibrium price will decrease.

Accepted Answer

A) True 
 B)False

Question 14

Explain the difference between substitutes and complements.

Accepted Answer

Substitutes are goods and serv

Question 15

Consider the collectors' market for first editions of two popular children's books,Harry Potter and the Order of the Phoenix by J.K.Rowling and Ruby in the Smoke by Philip Pullman.Sales of the Harry Potter novel are much greater than sales of Ruby in the Smoke yet the price of the Harry Potter novel is much lower than the price of Pullman's novel.
a.On one large diagram,draw a demand and supply graph for first editions of Harry Potter and the Order of the Phoenix and another demand and supply graph for first editions of Ruby in the Smoke.
b.Show how it is possible for the price of the Harry Potter novel to be much lower than the price of Pullman's novel,even though the demand for the Harry Potter novel is much greater than the demand for Ruby in the Smoke.
c.Provide a written explanation to accompany your graphical illustration.

Accepted Answer

a.and b.See the figure below. @#IMG-DLM& c.The dem

Question 16

If the demand for a product decreases and the supply of the same product increases,the equilibrium quantity will increase.

Accepted Answer

A) True 
 B)False

Question 17

Figure 3-1  
-Refer to Figure 3-1.A decrease in the price of a substitute good would be represented by a movement from

Accepted Answer

A) A to B. 
B) B to A. 
C) D1 to D2. 
D) D2 to D1. 
A) A to B. 
B) B to A. 
C) D1 to D2. 
D) D2 to D1.

Question 18

Discuss the correct and incorrect economic analysis in the following statement.
"If good weather in Hawaii creates a bumper crop of pineapples,the supply of pineapples will increase.This will result in a price decrease,which will then cause the supply of pineapples to decrease."

Accepted Answer

The supply of pineapples will

Question 19

Figure 3-1  
-Refer to Figure 3-1.An increase in the price of a complement would be represented by a movement from

Accepted Answer

A) A to B. 
B) B to A. 
C) D1 to D2. 
D) D2 to D1. 
A) A to B. 
B) B to A. 
C) D1 to D2. 
D) D2 to D1.

Question 20

During the 1990s positive technological change in the production of chicken caused the price of chicken to fall.Holding everything else constant,how would this affect the market for pork (a substitute for chicken)?

Accepted Answer

A) The supply of pork would increase and the equilibrium price of pork would decrease. 
B) The demand for pork would decrease and the equilibrium price of pork would decrease. 
C) The demand for pork would increase because consumers could afford to buy more chicken and pork. 
D) The demand for pork would decrease and the equilibrium price of pork would increase. 
A) The supply of pork would increase and the equilibrium price of pork would decrease. 
B) The demand for pork would decrease and the equilibrium price of pork would decrease. 
C) The demand for pork would increase because consumers could afford to buy more chicken and pork. 
D) The demand for pork would decrease and the equilibrium price of pork would increase.

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

A surplus is defined as the situation that exists when the quantity of a good supplied is greater than the quantity 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

If the price of beef jerky rises,the substitution effect due to the price change will cause

A change in supply is represented by a shift of the supply curve.

Elvira decreased her consumption of bananas when the price of peanut butter increased.For Elvira,peanut butter and bananas are

If a demand curve shifts to the left,then

One would speak of a change in the quantity of a good supplied,rather than a change in supply,if

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 S1 (point C).Which of the following changes would cause the equilibrium to change to point B?

If the demand for a product decreases and the supply of the same product decreases,the equilibrium price will decrease.

Explain the difference between substitutes and complements.

If the demand for a product decreases and the supply of the same product increases,the equilibrium quantity will increase.

Figure 3-1 -Refer to Figure 3-1.A decrease in the price of a substitute good would be represented by a movement from

Discuss the correct and incorrect economic analysis in the following statement. "If good weather in Hawaii creates a bumper crop of pineapples,the supply of pineapples will increase.This will result in a price decrease,which will then cause the supply of pineapples to decrease."

Figure 3-1 -Refer to Figure 3-1.An increase in the price of a complement would be represented by a movement from

During the 1990s positive technological change in the production of chicken caused the price of chicken to fall.Holding everything else constant,how would this affect the market for pork (a substitute for chicken)?

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

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