Deck 3: Demand, Supply, and the Market Process

Question 1

The maximum price that consumers are willing to pay for the hundredth unit of a good can be found as

A) the height of the supply curve at a quantity of 100.
B) the height of the demand curve at a quantity of 100.
C) the difference between the height of the supply and demand curves at a quantity of 100.
D) none of the above.

Answer 1

the height of the demand curve at a quantity of 100.

Question 2

Willingness to pay

A) measures the value that a buyer places on a good.
B) is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.
C) is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept.
D) is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Answer 2

measures the value that a buyer places on a good.

Question 3

The demand schedule for a good

A) indicates the relationship between the price of the good and the price of other goods.
B) indicates the quantities of the good that people will buy at various prices.
C) illustrates the quantity producers will provide at alternative prices.
D) is determined primarily by the cost of producing the good.

Answer 3

indicates the quantities of the good that people will buy at various prices.

Question 4

At a price of $5, Tyrone buys 10 units of a product; when the price increases to $6, Tyrone buys 8 units. Which of the following is correct about Tyrone's behavior?

A) Tyrone's demand has decreased.
B) Tyrone's demand has increased.
C) Tyrone's quantity demanded has decreased, and his demand has not changed.
D) Tyrone's quantity demanded has increased, and his demand has increased.
E) Tyrone's demand has increased, and his quantity demanded has decreased.

Question 5

Suppose Katie, Kendra, and Kristen each purchase a particular type of cell phone at a price of $80. Katie's willingness to pay was $100, Kendra's willingness to pay was $95, and Kristen's willingness to pay was $80. Consumer surplus for the three individuals is

A) $15.
B) $20.
C) $35.
D) $80.

Question 6

The difference between the amount consumers would be willing to pay and the amount they actually pay for a good is called

A) price elasticity of demand.
B) consumer surplus.
C) the substitution effect.
D) income elasticity of demand.

Question 7

Laqueta buys a new GPS device for her car for $135. She receives consumer surplus of $25 on her purchase if her willingness to pay is

A) $25.
B) $110.
C) $135.
D) $160.

Question 8

Because the height of the demand curve measures the marginal value of the good to consumers, the fact that a demand curve slopes downward to the right illustrates that

A) as more of a product is consumed, consumers will value additional units less.
B) as more of a product is consumed, consumers will value additional units more.
C) the value of additional units of the good is unrelated to the amount consumed.
D) the cost of production for a good generally rises as more of it is produced.

Question 9

Assume the demand curve for shampoo is downward sloping. If the price of shampoo falls from $1.50 to $1.25 per bottle,

A) the demand for shampoo will fall.
B) the demand for shampoo will rise.
C) a larger quantity of shampoo will be demanded.
D) a smaller quantity of shampoo will be demanded.

Question 10

Isabella buys a new camera for $80. She receives consumer surplus of $35 on her purchase if her willingness to pay is

A) $35.
B) $45.
C) $80.
D) $115.

Question 11

The law of demand refers to the

A) decrease in price that can be expected as more units of a product are demanded.
B) increase in price that results from an increase in demand for a good of limited supply.
C) inverse relationship between the price of a good and the quantity demanded.
D) increase in the quantity of a good available when its price increases.

Question 12

Which of the following does the law of demand specifically imply?

A) If the product price increases, quantity demanded will decrease.
B) If consumer income increases, quantity demanded will increase.
C) If the product price increases, quantity demanded will increase.
D) If consumer income increases, quantity demanded will decrease.
E) If supply increases, demand will increase.

Question 13

Consumer surplus

A) is the difference between total willingness to pay and the total amount actually paid.
B) guarantees that the market value of a good in money is equal to the total economic value of the good.
C) is always negative because of diminishing marginal utility.
D) is the total area under a consumer's demand curve.

Question 14

The height of the demand curve for a product indicates the

A) minimum price consumers are willing to pay for an additional unit of it.
B) minimum quantity consumers are willing to purchase at the current price.
C) maximum price consumers are willing to pay for an additional unit of it.
D) minimum price required to induce suppliers to produce an additional unit of it.

Question 15

Jamal buys a new jacket for $50. If his willingness to pay is ____, he receives consumer surplus of $15 on his purchase

A) $15.
B) $35.
C) $50.
D) $65.

Question 16

The law of demand refers to the

A) inverse relationship between the price of a good and the willingness of consumers to buy it.
B) price increase that results from an increase in demand for a good of limited supply.
C) inverse relationship between the price of a good and the quantity offered for sale.
D) increase in the quantity of a good available when its price increases.

Question 17

Which of the following about demand is true?

A) The height of the demand curve for a product at a given quantity represents the marginal value derived by the consumption of that unit.
B) The height of the demand curve for a product at a given quantity reflects the total value consumers derive from all units of the good consumed.
C) The total area above the demand curve for a product is equal to consumer surplus.
D) At every quantity, the height of the demand curve for a product represents the cost of producing that unit.

Question 18

A demand curve for flowers would show the

A) number of flowers the floral shop is willing to sell at various prices.
B) number of people who need flowers.
C) quantity of people who want to buy these flowers.
D) number of flowers that will be purchased at various prices.

Question 19

An important assumption that is made when constructing a demand schedule is that

A) only price and quantity matter in determining demand.
B) people always want a certain amount of a product.
C) demand is too important to be left to the economists.
D) all other determinants of demand are held constant.
E) demand has a positive slope.

Question 20

Each point on the demand curve indicates

A) the demand for the product.
B) the quantity demanded at that price.
C) the amount that people need.
D) the amount people want to buy at different income levels.

Question 21

If consumer purchases of a good are not very sensitive to the price of the good, economists say the demand for the good is relatively

A) inelastic.
B) elastic.
C) robust.
D) inverse.

Question 22

If a large percentage increase in the price of a good results in a small percentage reduction in the quantity demanded of the good, demand is said to be

A) horizontal.
B) relatively inelastic.
C) relatively elastic.
D) income proof.

Question 23

If consumer purchases of a good are highly sensitive to the price of the good, this is illustrated by a

A) demand curve that is relatively flat (more horizontal).
B) demand curve that is relatively steep (more vertical).
C) supply curve that is relatively flat (more horizontal).
D) supply curve that is relatively steep (more vertical).

Question 24

The price elasticity of demand for a good or service is determined primarily by the

A) size of the consumer surplus.
B) availability of substitutes for the good.
C) incomes of consumers.
D) availability of complementary goods.

Question 25

If the demand for a good is relatively elastic, this means that consumer purchases of the good are

A) not very sensitive to the price of the good.
B) highly sensitive to the price of the good.
C) unrelated to the price of the good.
D) unaffected by changes in the income level of consumers.

Question 26

Sebastian drinks Mountain Dew. He can buy as many cans of Mountain Dew as he wishes at a price of $0.50 per can. On a particular day, he is willing to pay $0.95 for the first can, $0.80 for the second can, $0.60 for the third can, and $0.40 for the fourth can. Assume Sebastian is rational in deciding how many cans to buy. His consumer surplus is

A) $0.50.
B) $0.85.
C) $1.05.
D) $1.20.

Question 27

Kayla decides that she would pay as much as $400 for a new refrigerator. She buys the refrigerator and realizes consumer surplus of $75. How much did Kayla pay for her refrigerator?

A) $75
B) $325
C) $400
D) $475

Question 28

Andrew buys yogurt, and he would be willing to pay more than he now pays. Suppose that Andrew has a change in his tastes such that he values yogurt more than before. If the market price is the same as before, then

A) Andrew's consumer surplus would be unaffected.
B) Andrew's consumer surplus would increase.
C) Andrew's consumer surplus would decrease.
D) Andrew would be wise to buy less yogurt than before.

Question 29

If consumer purchases of a good are highly sensitive to the price of the good, economists say the demand for the good is relatively

A) inelastic.
B) elastic.
C) robust.
D) inverse.

Question 30

If the demand for a good is relatively inelastic, this means that consumer purchases of the good are

A) not very sensitive to the price of the good.
B) highly sensitive to the price of the good.
C) unrelated to the price of the good.
D) unaffected by changes in the income level of consumers.

Question 31

Andre decides that he would pay as much as $3,000 for a new laptop computer. He buys the computer and realizes consumer surplus of $700. How much did Andre pay for his computer?

A) $700
B) $2,300
C) $3,000
D) $3,700

Question 32

Which of the following best explains the source of consumer surplus for a particular product?

A) Many consumers pay prices that are greater than the equilibrium price of the product.
B) Many consumers would be willing to pay more than the market price for the product.
C) Many consumers think the market price of the product is greater than its cost.
D) Many consumers think the demand for the product is elastic.

Question 33

Consumer surplus is the area on the graph

A) above the supply curve and below the demand curve.
B) below the demand curve and above the market price.
C) that represents the gains that producers receive when they sell a product.
D) that reflect the opportunity cost of producing the a good.

Question 34

Graphically, the area that represents the difference between the maximum price consumers were willing to pay for a good and the market price is called

A) consumer surplus.
B) producer surplus.
C) marginal cost.
D) triangular arbitrage.

Question 35

If a small percentage increase in the price of a good results in a rather large percentage reduction in the quantity demanded of the good, demand is said to be

A) vertical.
B) relatively inelastic.
C) relatively elastic.
D) robust.

Question 36

Table 3-1 Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $15, then who would be willing to purchase the product?

A) Mike
B) Mike and Sandy
C) Mike, Sandy, and Jonathan
D) Mike, Sandy, Jonathan, and Haley

Question 37

Table 3-1 Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $18, then their total consumer surplus is

A) $38.
B) $42.
C) $46.
D) $72.

Question 38

If consumer purchases of a good are not very sensitive to the price of the good, this is illustrated by a

A) demand curve that is relatively flat (more horizontal).
B) demand curve that is relatively steep (more vertical).
C) supply curve that is relatively flat (more horizontal).
D) supply curve that is relatively steep (more vertical).

Question 39

Two products that serve similar purposes for a consumer would be referred to as

A) substitutes.
B) complements.
C) inferior goods.
D) unrelated goods.

Question 40

Table 3-1 Refer to Table 3-1. If the table represents the willingness to pay of four buyers and the price of the product is $30, then their total consumer surplus is

A) $−10.
B) $−6.
C) $20.
D) $30.

Question 41

Other things constant, which of the following would most likely cause the supply of garden hoses to decrease?

A) an increase in the price of plastic used to make garden hoses
B) a technological advance that lowers the cost of producing garden hoses
C) the occurrence of a very dry year with little rain
D) a decrease in the price of grass seed

Question 42

Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for ethanol lead to higher corn prices, this will

A) increase the supply of corn.
B) increase the supply of soybeans.
C) decrease the supply of soybeans.
D) decrease the supply of corn.
E) have no effect on the supplies of corn and soybeans.

Question 43

If price rises, what happens to supply of a product?

A) It increases.
B) It decreases.
C) It does not change.
D) Uncertain--economic theory has no answer to this question.

Question 44

When economists say the quantity supplied of a product has increased, they mean the

A) supply curve has shifted to the left.
B) supply curve has shifted to the right.
C) price of the product has risen, and consequently, suppliers are producing more of it.
D) price of the product has fallen, and consequently, suppliers are producing less of it.

Question 45

How will an increase in lumber prices influence the home construction market?

A) The demand for newly constructed homes will increase.
B) The demand for newly constructed homes will decrease.
C) The supply of newly constructed homes will increase.
D) The supply of newly constructed homes will decrease.

Question 46

When economists say the supply of a product has decreased, they mean that

A) the supply curve has shifted to the left.
B) the product price has decreased, and as a consequence, suppliers are producing less of the product.
C) producers are now willing to sell more of this product at each possible price.
D) the supply curve has shifted to the right.

Question 47

When economists say the supply of a product has increased, they mean the

A) supply curve has shifted to the right.
B) price of the product has risen, and consequently, suppliers are producing more of it.
C) supply curve has shifted to the left.
D) amount of the product that consumers are willing to purchase at various prices has increased.

Question 48

When economists say the quantity supplied of a product has decreased, they mean the

A) supply curve has shifted to the left.
B) supply curve has shifted to the right.
C) price of the product has risen, and consequently, suppliers are producing more of it.
D) price of the product has fallen, and consequently, suppliers are producing less of it.

Question 49

Which of the following will lead to a decrease in supply of a good?

A) an increase in the price of the good
B) an increase in consumer incomes
C) an increase in the price of an important resource used to produce the good
D) a technological advance that lowers the cost of producing the good

Question 50

Graphically, what impact would an increase in the price of jet fuel have on the market for air travel?

A) It would shift the supply curve for air travel to the right.
B) It would shift the supply curve for air travel to the left.
C) It would shift the demand curve for air travel to the right.
D) It would shift the demand curve for air travel to the left.

Question 51

In which statement(s) are "supply" and "quantity supplied" used correctly?
(I)  "An increase in the price of toasters will increase the quantity supplied of toasters."
(II)  "A technological advance that lowers the cost of producing toasters will increase the supply of toasters."

A) in both statements I and II
B) in statement I only
C) in statement II only
D) in neither statements I nor II

Question 52

If the United Auto Workers union can obtain a substantial wage increase for auto workers, there will be

A) a decrease in the supply of automobiles, which is a shift to the right of the supply curve.
B) a decrease in the supply of automobiles, which is a shift to the left of the supply curve.
C) an increase in the supply of automobiles, which is a shift to the right of the supply curve.
D) an increase in the supply of automobiles, which is a shift to the left of the supply curve.

Question 53

Which of the following would most likely cause the supply of wheat to increase?

A) a decrease in the price of corn, a substitute for wheat
B) a technological advance that lowers the cost of producing wheat
C) an increase in the cost of producing wheat
D) a change in consumer preferences, causing them to prefer plain white bread to whole-wheat bread

Question 54

A decrease in the price of leather used to make shoes would cause the

A) demand for shoes to decrease.
B) demand for shoes to increase.
C) supply of shoes to decrease.
D) supply of shoes to increase.

Question 55

In which statement(s) is "supply" used correctly?
(I)  "An increase in the price of flour will increase the supply of flour."
(II)  "As the cost of producing flour rises, the supply of flour will tend to fall."

A) in both statements I and II
B) in statement I only
C) in statement II only
D) in neither statements I nor II

Question 56

If price rises, what happens to quantity supplied of a product?

A) It increases.
B) It decreases.
C) It does not change.
D) Quantity supplied is constant, but supply increases.

Question 57

Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will be the effect in the egg market?

A) The quantity of eggs demanded will increase.
B) Egg demand will decrease.
C) Egg supply will increase.
D) Egg supply will decrease.

Question 58

Which of the following would most likely increase the supply of beef?

A) lower prices of grains used to feed cattle
B) lower prices for chicken, a substitute for beef
C) new medical research suggesting that beef causes more serious health problems than was previously thought
D) an increase in the cost of transporting beef products to the consumer market

Question 59

In the orange market, what impact would an increase in the price of oil that orange growers burn to keep oranges from freezing in the winter have on the market?

A) It would shift the supply curve to the right.
B) It would shift the supply curve to the left.
C) It would shift the demand curve to the left.
D) It would shift the demand curve to the right.

Question 60

How will a reduction in the price of cotton influence the market for blue jeans?

A) The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the left.
B) The cost of producing blue jeans will fall, and the supply curve for blue jeans will shift to the right.
C) The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the left.
D) The cost of producing blue jeans will rise, and the supply curve for blue jeans will shift to the right.

Question 61

Use the table below to choose the correct answer. The table is a schedule of the supply and demand for coffee (both given in thousands of pounds per month). The equilibrium market price of coffee would be

A) $6 per pound.
B) $8 per pound.
C) $10 per pound.
D) $12 per pound.

Question 62

If equilibrium is present in a market,

A) there is generally either a shortage or a surplus.
B) quantity demanded equals quantity supplied.
C) quantity demanded exceeds quantity supplied.
D) quantity supplied exceeds quantity demanded.

Question 63

When there is excess demand for a product in a market,

A) price will tend to fall.
B) price must be below the equilibrium price.
C) price must be above the equilibrium price.
D) producers will reduce output and sales will fall.

Question 64

If a surplus exists in a market we know that the actual price is

A) above equilibrium price and quantity supplied is greater than quantity demanded.
B) above equilibrium price and quantity demanded is greater than quantity supplied.
C) below equilibrium price and quantity demanded is greater than quantity supplied.
D) below equilibrium price and quantity supplied is greater than quantity demanded.

Question 65

Which of the following is true of the interaction of supply and demand?

A) As the price increases, the quantity demanded and the quantity supplied will increase.
B) As the price increases, the quantity demanded and the quantity supplied will decrease.
C) As the price increases, the quantity demanded increases and the quantity supplied will decrease.
D) As the price increases, the quantity demanded will decrease and the quantity supplied will increase.
E) As the price increases, neither the quantity demanded nor quantity supplied will change.

Question 66

In a competitive market economy, a resource in short supply will be allocated

A) so that each firm gets enough to keep producing some portion of its output.
B) according to how much each firm purchased before the shortage.
C) to those firms that can make the most profitable use of it.
D) by government regulation.

Question 67

Which of the following occurs when a shortage occurs in the market for a good?

A) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price up, which in turn encourages more production and less consumption.
B) Quantity supplied exceeds quantity demanded and the price falls, which encourages more production and less consumption.
C) Quantity demanded exceeds quantity supplied and the market mechanism pushes the price down, which encourages more production and less consumption.
D) Quantity supplied exceeds quantity demanded and the price rises, which encourages more production and less consumption.

Question 68

When there is excess supply of a product in a market,

A) price will tend to rise.
B) price must be above the equilibrium price.
C) producers will expand output and sales will rise.
D) price must be below the equilibrium price.

Question 69

The price of a good will tend to fall when

A) there is excess demand for the good.
B) there is excess supply of the good.
C) demand for the good increases.
D) the supply of the good decreases.

Question 70

The forces of supply and demand assure that

A) demand curves and supply curves tend to shift to the right as time goes by.
B) the price of a good will eventually rise in response to an excess demand for that good.
C) when the supply curve for a good shifts, the demand curve for that good shifts in response.
D) the equilibrium price of a good will be rising more often than it will be falling.

Question 71

The term market always refers to

A) an arrangement in which buyers and sellers meet at a specific time and place.
B) an arrangement in which an auctioneer plays at least a limited role in setting prices.
C) a group of buyers and sellers of a particular good or service.
D) a single buyer and seller of a particular good or service.

Question 72

Use the table below to choose the correct answer. The table is a schedule of the supply and demand for ground hamburger meat (both given in thousands of pounds per month). The equilibrium market price of ground hamburger meat would be

A) $1 per pound.
B) $2 per pound.
C) $2.50 per pound.
D) $3 per pound.

Question 73

If a major hurricane were to destroy the sugarcane crop in Louisiana, there would be

A) a decrease in the supply of sugarcane.
B) an increase in the supply of sugarcane.
C) a decrease in the demand for sugarcane.
D) an increase in the demand for sugarcane.

Question 74

A shortage occurs whenever

A) quantity demanded exceeds quantity supplied at the equilibrium price.
B) price is less than equilibrium price.
C) quantity demanded is less than quantity supplied.
D) goods are scarce.
E) some of the people who need the product are not willing and able to buy it at the equilibrium price.

Question 75

What impact would a severe drought that destroys the wheat crop in several areas of the United States have on the market for wheat?

A) The supply of wheat would fall.
B) The supply of wheat would rise.
C) The demand for wheat would fall.
D) The demand for wheat would rise.

Question 76

Which of the following will reduce the supply of motorcycles?

A) an increase in the population age 16 to 35, the primary consumers of motorcycles
B) an increase in taxes imposed on motorcycle producers
C) a technological improvement reducing the production costs of motorcycles
D) a government study that reveals motorcycle riders, on average, live 10 years longer than those who don't ride motorcycles

Question 77

Which of the following would reduce the supply of baseball hats?

A) An increase in the demand for baseball hats.
B) A new tax imposed on the producers of baseball hats.
C) A reduction in the price of cloth used to make baseball hats.
D) All of the above.

Question 78

Which of the following would increase the supply of laptop computers?

A) higher wage rates for the workers that produce laptop computers
B) a technological improvement that lowers the cost of producing laptop computers
C) an increase in the price of computer chips used to produce laptop computers
D) all of the above

Question 79

When the quantity demanded and quantity supplied in a market are equal, the market is said to be in

A) fixation.
B) excess supply.
C) equilibrium.
D) excess demand.

Question 80

Suppliers recognize there is a shortage in the market for their product when they notice that

A) the quantity supplied exceeds the quantity demanded.
B) the quantity demanded is falling.
C) inventories are falling.
D) production exceeds new orders for the product.
E) government economists announce a shortage exists.