Deck 4: Demand, Supply, and Equilibrium

Question 1

Which of the following statements correctly describes a perfectly competitive market?

A) All participants in a perfectly competitive market are price-takers.
B) Haggling and bargaining is commonly observed in a perfectly competitive market.
C) In a perfectly competitive market, individual sellers and buyers can influence the market price.
D) Buyers in a perfectly competitive market pay different prices according to their individual demand.

Answer 1

All participants in a perfectly competitive market are price-takers.

Question 2

Which of the following is a feature of a perfectly competitive market?

A) There is only one seller of a commodity.
B) The government rations commodities.
C) The product of each seller differs marginally from its rival products.
D) Each seller is too small to influence the market price.

Answer 2

Each seller is too small to influence the market price.

Question 3

If all sellers and all buyers face the same price during an exchange,it is referred to as the ________.

A) mark-up price
B) market price
C) discounted price
D) cost price

Answer 3

market price

Question 4

Suppose the market for cement is such that the output of all sellers is identical in composition and quality.While there are a large number of buyers and sellers,everyone conducts transactions at a common market price.Which of the following statements is true about the structure of the cement market?

A) The cement market is perfectly competitive.
B) The cement market is government regulated.
C) All participants in the cement market are price-makers.
D) All transactions in the cement market are likely to be involuntary.

Question 5

The automobile market in the United States is often said to be highly competitive.But it is not perfectly competitive.What makes this market not perfectly competitive?

A) Different car companies make different vehicles with different features.
B) An individual car buyer can dictate what price he or she pays for a vehicle.
C) More than three major car companies exist in this market.
D) An individual seller can dictate what price a consumer pays for a vehicle.

Question 6

Which of the following is not an example of a market?

A) A cattle auction, where farmers and ranchers bring cattle to be purchased by packing plants
B) Etsy.com, a Web site where artists, designers, and craftspersons offer items they have made to interested buyers
C) A city requires homeowners to pay $500 for putting in a sidewalk on their street
D) The National Residency Matching Program, where medical residents express their preferences for residencies, hospitals express their preferences for medical residents, and these preferences are used to match residents to residencies

Question 7

Which of the following examples best approximates a competitive market?

A) The market for F-35 fighter planes
B) The market for Tesla electric cars
C) The market for soybeans in the United States
D) The market for Jackson Pollock paintings

Question 8

Which of the following statements correctly describes a competitive market?

A) Buyers and sellers negotiate prices before making exchanges.
B) The market price for the same good varies from seller to seller.
C) A single seller sometimes has the ability to dictate the market price.
D) The market price is determined by the interaction of demand and supply.

Question 9

Should an economist consider a Web-based job search portal like Monster.com as a market?

Question 10

Explain the role of prices in a market.

Question 11

Which of the following is not a required characteristic of a market?

A) A collection of economic agents (e.g., buyers and sellers)
B) Trade or exchange of a good or service
C) Rules and arrangements for trading
D) Government setting the price of the good or service

Question 12

A seller who is a price-taker charges ________.

A) the market price
B) a price above the market price
C) a price below the market price
D) different prices to different buyers

Question 13

The gasoline market in the United States is often said to be highly competitive.But it is not perfectly competitive.What makes this market not perfectly competitive?

A) If you don't like the price at one gas station, you can go to another one.
B) Different companies put different additives (designed to reduce engine deposits) in the gas they sell.
C) An individual seller can dictate what price a consumer pays for its gas.
D) Gas stations located near each other tend to charge the same or very similar prices.

Question 14

Which of the following is true of a market?

A) A market must be under continuous surveillance and government control.
B) A market always requires a specific physical location.
C) Goods and services are exchanged at fixed prices in all markets.
D) Price acts as a selection device for buyers and sellers in every market.

Question 15

In a perfectly competitive market,________.

A) all exchanges take place involuntarily
B) there is only one seller and many buyers
C) all sellers sell an identical good or a service
D) there is no provision for the protection of property rights

Question 16

Which of the following does NOT have a market in the real world?

A) First-class mail delivery in the United States, where the U.S. Postal Service is the only legal carrier of such mail
B) Kidneys for transplant, for which you cannot legally receive or pay money
C) Illegal narcotic substances
D) None of the above

Question 17

A(n)________ is a group of buyers and sellers who are trading goods and/or services.

A) firm
B) market
C) enterprise
D) government

Question 18

The gasoline market in the United States is often said to be highly competitive.It is not perfectly competitive,but it has features and results that are similar to those of a perfectly competitive market,such as ________.

A) an individual buyer cannot influence the market price of gasoline by himself
B) gas stations located near each other tend to charge the same or very similar prices
C) an individual gas station cannot influence the market price by itself
D) all of the above

Question 19

Why do economists study perfectly competitive markets even though few,if any,markets in the real world are perfectly competitive?

A) Because insights we gain from studying the perfectly competitive market are directly applicable to real markets, even though they are not perfectly competitive.
B) Because the behavior of buyers and sellers can be studied theoretically only in the perfectly competitive market model.
C) Because the perfectly competitive market is a good approximation to many markets in the real world and helps us understand how real markets work.
D) Because the perfectly competitive market is the most relevant model for actual government economic policies.

Question 20

In competitive markets,firms ________.

A) coordinate pricing decisions with other firms
B) take the market price as given
C) have the government set maximum and minimum prices
D) set the market price

Question 21

The demand schedule for a commodity illustrates how the consumption of a commodity changes with changes in ________.

A) supply
B) income
C) its price
D) tastes and preferences

Question 22

During the Battle of the Bulge in December 1944,American soldiers near Bastogne,Belgium,offered as much as $73 for a can of Campbell's soup that sold for $0.13 in U.S.grocery stores ($73 was nearly an entire month's pay for an army sergeant at that time).These large amounts of money offered for soup represent a(n)________.

A) exception to the law of demand
B) high willingness to pay
C) low willingness to pay
D) decrease in demand caused by a decrease in income

Question 23

Scenario: A market researcher asks three consumers, A, B, and C, about their willingness to pay for different quantities of a 20-ounce bottle of Lemon-Lime Gatorade. She collects the following information.

Refer to the scenario above.What is the change in the quantity demanded in the market if the price of Gatorade falls from $4 per 20-ounce bottle to $3 per 20-ounce bottle?

A) No increase
B) Increase of 1 bottle
C) Increase of 2 bottles
D) Increase of 4 bottles

Question 24

What are the key features of a perfectly competitive market?

Question 25

Which of the following examples best describes the Law of Demand?

A) When John's income doubles, his telephone bill also doubles.
B) When the price of bread doubles, John's consumption of bread halves.
C) When the price of watches increases, a local manufacturer starts offering more watches for sale.
D) When a new anti-tobacco commercial is released, the consumption of tobacco products decreases sharply.

Question 26

The willingness to pay for a commodity ________.

A) decreases as consumption of the commodity increases
B) increases as consumption of the commodity increases
C) is always less than the market price of the commodity
D) is always greater than the market price of the commodity

Question 27

Scenario: A market researcher asks three consumers, A, B, and C, about their willingness to pay for different quantities of a 20-ounce bottle of Lemon-Lime Gatorade. She collects the following information.

Refer to the scenario above.Derive the market quantity demanded at each price and sketch the market demand curve for the graph below.

Question 28

The buyers of a good will want to purchase it as long as their willingness to pay for the good is ________.

A) equal to zero
B) greater than zero
C) less than the price
D) greater than or equal to the price

Question 29

The ________ plots the relationship between prices and the quantity that buyers are willing to purchase.

A) marginal cost curve
B) supply curve
C) demand curve
D) budget constraint

Question 30

Scenario: A market researcher asks three consumers, A, B, and C, about their willingness to pay for different quantities of a 20-ounce bottle of Lemon-Lime Gatorade. She collects the following information.

Refer to the scenario above.If the price of Gatorade decreases from $4.00 per bottle to $3.50 per bottle,what is consumer C's change in quantity demanded?

A) No increase
B) Increase of 1 bottle
C) Increase of 2 bottles
D) Increase of 4 bottles

Question 31

Scenario: A market researcher asks three consumers, A, B, and C, about their willingness to pay for different quantities of a 20-ounce bottle of Lemon-Lime Gatorade. She collects the following information.

Refer to the scenario above.Which consumer has the highest willingness to pay for Gatorade?

A) Consumer A
B) Consumer B
C) Consumer C
D) Consumers A and B

Question 32

Suppose Apple raises the cost of downloading a song from iTunes from $0.99 per song to $1.49 per song.This price increase will cause a(n)________.

A) increase in demand
B) decrease in demand
C) increase in quantity demanded
D) decrease in quantity demanded

Question 33

The demand curve for most goods is normally ________.

A) upward sloping
B) downward sloping
C) parallel to the y-axis
D) parallel to the x-axis

Question 34

The quantity demanded of a good is ________.

A) determined independently of the market price of the good
B) always determined by government intervention
C) the amount of the good that sellers are willing to supply at a given market price
D) the amount of the good that buyers are willing to purchase at a given market price

Question 35

Which of the following examples best describes the concept of diminishing marginal benefit?

A) If the weather gets cold, the demand for ice cream will fall.
B) With each additional pen Jill buys, her willingness to pay for another pen decreases.
C) Each additional unit of ice cream that John consumes gives him more and more satisfaction.
D) If a seller of notebooks in a perfectly competitive market charges above the market price, his profit decreases.

Question 36

Jenny likes chocolates.One day,a friend offers her a chocolate bar and she is extremely happy on receiving it.As the day progresses,many other people also buy her chocolate.As she gets more and more chocolates,her excitement on receiving each bar is seen to gradually lessen.Which economic principle is reflected in this example?

A) The Law of Equi-Marginal Utility
B) Aggregation of demand behavior
C) The concept of diminishing marginal benefit
D) The Law of Increasing Willingness to Pay

Question 37

The concept of diminishing marginal benefit states that ________.

A) lower levels of consumption give lower level of utility
B) the demand for a commodity declines as its price increases
C) the demand for a commodity is more dependent on income than on price
D) the willingness to pay for an additional unit declines as more of a good is consumed

Question 38

Which of the following statements is true of the concept of willingness to pay?

A) The willingness to pay is the lowest price that a buyer is willing to pay for an extra unit of a commodity.
B) The willingness to pay for a commodity increases exponentially as the consumption of the commodity increases.
C) The willingness to pay for a commodity increases linearly as the consumption of the commodity increases.
D) If a consumer is consuming 10 units of a commodity and she is ready to pay $2 for the eleventh unit, her willingness to pay for the eleventh unit is $2.

Question 39

The Law of Demand states that ________.

A) the demand for a commodity is directly related to consumers' income, all other things remaining constant
B) the demand for a commodity always equals the supply of the commodity
C) the quantity demanded of a commodity varies inversely with the price of the commodity, all other things remaining constant
D) the quantity demanded of a commodity is the same for all consumers in a perfectly competitive market

Question 40

Which of the following best describes the difference between a demand curve and a demand schedule?

A) A demand curve can be derived from a demand schedule, but a demand schedule cannot be derived from a demand curve.
B) A demand curve is a graphical representation of the relationship between the quantity of a good and its price, whereas a demand schedule is a tabular representation.
C) A demand curve shows the different quantities of a good demanded at different prices, whereas a demand schedule shows the different quantities of a good demanded at different incomes.
D) A demand curve shows the different quantities of a good demanded at different incomes, whereas a demand schedule shows the different quantities of a good demanded at different prices.

Question 41

A change in the quantity demanded of a good is ________.

A) the outcome of a change in consumer income
B) represented by a shift of a demand curve
C) the outcome of a change in tastes and preferences
D) represented by a movement along a demand curve

Question 42

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.

Refer to the table above.If the market price of wine is $4 per bottle,and the market demand for wine is 65 bottles,Sandra's demand for wine is ________.

A) 18 bottles.
B) 40 bottles.
C) 47 bottles.
D) 111 bottles.

Question 43

The figure below shows Sue's and Carlos' demand curves for gasoline. It would be useful to find the equation of the demand curves to answer the questions below.

Refer to the figure above.If the price of gasoline is 3.00 euros per liter,the total quantity of gasoline demanded is ________ liters.

A) 1,600
B) 2,400
C) 4,300
D) 5,100

Question 44

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.

Refer to the table above.What is the market demand for wine when the price is $1?

A) 50 units
B) 51 units
C) 76 units
D) 80 units

Question 45

An increase in the demand for a good is represented by ________.

A) a leftward shift of a demand curve
B) a rightward shift of a demand curve
C) a leftward movement along a demand curve
D) a rightward movement along a demand curve

Question 46

The figure below shows Sue's and Carlos' demand curves for gasoline. It would be useful to find the equation of the demand curves to answer the questions below.

Refer to the figure above.If the price of gasoline is 12.00 euros per liter,the total quantity of gasoline demanded is ________ liters.

A) 0
B) 400
C) 1,000
D) 1,600

Question 47

Which of the following pairs of goods is likely to be considered complements?

A) Pens and writing pads
B) Laptops and electric heaters
C) Motorcycles and typewriters
D) Nokia and Samsung cell phones

Question 48

The following figure shows the demand curves for pens for two consumers.

Assuming that the market consists of only these two consumers,what is the market demand for pens when the price is $4?

A) 15 units
B) 25 units
C) 40 units
D) 65 units

Question 49

The acai berry and products made from it are a popular dietary supplement,believed to reverse diabetes and lead to weight loss.Suppose that a peer-reviewed medical study reveals that there are no health benefits from consuming acai berry products.The likely effect of this medical study will be to ________.

A) not cause a change in demand but to decrease quantity demanded
B) not cause a change in demand but to increase quantity demanded
C) cause a decrease in demand
D) cause an increase in demand

Question 50

Two goods are said to be complements when a fall in the price of one good ________.

A) leads to a fall in the price of the other good
B) does not affect the demand for the other good
C) leads to a leftward shift in the demand for the other good
D) leads to a rightward shift in the demand for the other good

Question 51

Las Vegas,Nevada,is a popular vacation destination for residents of Hawaii.If the Hawaiian economy experiences strong economic growth and,as a result,household incomes increase on average by 10 percent,what will likely happen to the demand for airplane tickets from Hawaii to Las Vegas?

A) Demand will increase.
B) Demand will decrease.
C) No shift in demand will occur; quantity demanded will increase.
D) No shift in demand will occur; quantity demanded will decrease.

Question 52

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.

Refer to the table above.If the market price of wine is $8 per bottle,and the market demand for wine is 19 bottles,David's consumption of wine is ________.

A) 4 bottles
B) 7 bottles
C) 9 bottles
D) 12 bottles

Question 53

The following table shows the demand schedules of three consumers of wine. Assume that these three buyers constitute the entire market.

Refer to the table above.What is the market demand for wine when the price is $3?

A) 28 units
B) 35 units
C) 66 units
D) 50 units

Question 54

The following table shows the demand for notebooks of four consumers.

Define the term "market demand." If these four consumers constitute the entire market,calculate the market demand for notebooks at $1,$4,$6,and $8,respectively.

Question 55

Which of the following factors is likely to lead to an increase in the quantity demanded of pens?

A) A fall in the price of pens
B) A fall in the price of paper
C) A rise in the incomes of all consumers
D) A fall in the incomes of all consumers

Question 56

Two goods are said to be substitutes when a fall in the price of one good ________.

A) leads to a rise in the price of the other good
B) does not affect the demand for the other good
C) leads to a leftward shift in the demand for the other good
D) leads to a rightward shift in the demand for the other good

Question 57

The figure below shows Sue's and Carlos' demand curves for gasoline. It would be useful to find the equation of the demand curves to answer the questions below.

Refer to the figure above.The total demand curve has the vertical intercept at ________ and the horizontal intercept at ________,and its slope ________.

A) 15.00 euros; 7,000 liters; changes at 10.00 euros
B) 15.00 euros; 7,000 liters; changes at 8.12 euros
C) 18.00 euros; 7,000 liters; is twice as steep as Sue's demand curve
D) 10.00 euros; 7,000 liters; is half as steep as Carlos's demand curve

Question 58

Which of the following factors will NOT cause a shift in the demand for a good?

A) A change in consumer incomes
B) A change in tastes and preferences
C) A change in the number of consumers
D) A change in the market price of the good

Question 59

Which of the following pairs of goods is likely to be considered substitutes?

A) Coffee and sugar
B) Printers and printing ink
C) A Ford car and public transportation
D) A Nokia cell phone and a Nokia cell phone charger

Question 60

The market demand is the ________ of the individual demand of all the potential buyers.

A) sum
B) product
C) square of the sum
D) square root of the sum

Question 61

Differentiate between a change in demand and a change in quantity demanded.

Question 62

Which of the following is likely to cause the demand curve for cars to shift to the left?

A) A rise in the price of gasoline
B) An increase in the economy's national income
C) An increase in the cost of production, leading to an increase in the price of cars
D) A rise in the price of cars

Question 63

The Law of Supply states that ________.

A) supply creates its own demand
B) the quantity supplied of a good rises when the price rises, all other things remaining constant
C) at the equilibrium price, there is always some excess supply in the market
D) the quantity supplied of a good will always equal the quantity of the good demanded

Question 64

Which statement is consistent with the study reported in the Evidence-Based Economics element in this chapter?

A) The relatively low quantity of gasoline demanded in Brazil explains why its government taxes gasoline heavily.
B) The relatively modest quantity of gasoline demanded in Mexico explains why the gasoline price in Mexico is between that of Brazil and Venezuela.
C) The very low gasoline price due to large subsidies explains why more gasoline is consumed in Venezuela than in other countries.
D) The very high gasoline price due to high taxes explains why more gasoline is consumed in Mexico than in Brazil.

Question 65

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.Household income is expected to grow by 5.5 percent per year in Charlotte.If MLB game attendance is a normal good,income growth will cause a(n)________.

A) increase in quantity demanded
B) decrease in quantity demanded
C) increase in demand
D) decrease in demand

Question 66

A supply schedule is a table that reports the ________.

A) expected excess supply in the market at different prices
B) profits earned by producers at different levels of production
C) different quantities of a good that producers are willing to sell at different income levels
D) different quantities of a good that producers are willing to sell at different prices

Question 67

How would the following events affect the market demand for laser printers?
a)A recession in the economy leading to a fall in income levels
b)A fivefold increase in the price of printing paper

Question 68

Which of the following is likely to shift the market demand curve for school textbooks to the right?

A) An increase in school tuition fees
B) A fall in the price of school textbooks
C) A fall in the total income of all consumers
D) An increase in the enrollment rates in high schools

Question 69

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.Suppose Charlotte's NBA franchise,the Charlotte Hornets,decides to relocate to Seattle,Washington.How will the city's loss of this professional sports franchise affect demand for MLB game attendance in Charlotte?

A) Cause an increase in only quantity demanded
B) Cause an increase in demand
C) Cause a decrease in only quantity demanded
D) Cause a decrease in demand

Question 70

How does the study reported in the Evidence-Based Economics element in this chapter demonstrate the law of demand?

A) It relies on theoretical graphs of the demand curve for gasoline.
B) It uses different tax and subsidy policies across Latin American countries as a natural experiment.
C) It compares the quantity demanded before and after the Venezuelan government ended gasoline subsidies.
D) It compares the quantity demanded between Latin American countries and Middle East countries.

Question 71

The quantity supplied of a good is ________.

A) inversely related to the price of the good
B) determined irrespective of the market price
C) always equal to the quantity demanded of the good
D) the amount of the good that sellers are ready to supply at a given price

Question 72

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.The Charlotte Metropolitan Statistical Area (seven counties in North Carolina and three counties in South Carolina)is expected to grow at an annual rate of 1.3 percent.Population growth will cause a(n)________.

A) increase in demand
B) decrease in demand
C) increase in quantity demanded
D) decrease in quantity demanded

Question 73

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.Suppose attending other major league sports events is a substitute for attending MLB games.If the Carolina Panthers decrease their ticket prices by 2.6 percent,how will this affect demand for MLB games in Charlotte?

A) Cause an increase in demand
B) Cause a decrease in demand
C) Cause an increase in quantity demanded
D) Cause a decrease in quantity demanded

Question 74

The ________ plots the relationship between prices and the quantity producers are willing to sell.

A) average cost curve
B) supply curve
C) demand curve
D) fixed cost curve

Question 75

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.MLB forecasted that parking for MLB games in Charlotte would cost $12,but it now learns that parking will actually cost $16.How will the increased price of parking affect demand for MLB game attendance in Charlotte?

A) Quantity demanded will increase.
B) Quantity demanded will decrease.
C) Demand will increase.
D) Demand will decrease.

Question 76

Scenario: Suppose Major League Baseball (MLB) is considering expansion to a U.S. city that currently does not have a MLB franchise. The league has compiled the following information on five cities viewed as the top contenders for an expansion franchise:

MLB decides Charlotte is the most attractive candidate to receive an expansion franchise and is contemplating how demographic and economic information is likely to affect demand to attend MLB games in Charlotte.
Refer to the scenario above.Attendance at games of the minor league baseball franchise in Charlotte,the Charlotte Knights,leads all of Minor League Baseball and has been growing 8 percent per year for the past 5 years.How will baseball's growing popularity in Charlotte affect demand for MLB game attendance in Charlotte?

A) Cause an increase in demand
B) Cause an increase in quantity demanded
C) Cause a decrease in quantity demanded
D) Case a decrease in demand

Question 77

With real-world examples,illustrate the various factors that can cause a shift in the demand curve of a commodity.

Question 78

Which of the following factors is expected to cause the demand curve for coffee to shift to the right?

A) A fall in the manufacturing cost of coffee
B) A higher tax on the sale of tea, a substitute for coffee
C) A higher personal tax on the income of all consumers
D) An increase in the supply of coffee due to better weather

Question 79

In a market for apples,a consumer purchases 30 pounds when the price of apples is $1 per pound and the consumer's income is $5,000 per month.When the price of apples increases to $2 per pound,without any change in the consumer's income,she decides to purchase only 15 pounds of apples.Suppose,after a given period of time,the consumer's income falls to $3,000 per month.Her consumption of apples also decreases to 10 pounds.Using a graph,illustrate the difference between the change in quantity demanded and the change in demand for apples.

Question 80

Assume that the economy is in a recession and consumers are expecting a fall in their income levels.This will cause a(n)________.

A) leftward shift in the market demand for all goods
B) rightward shift in the market demand for all goods
C) increase in the total quantity demanded of all goods
D) decrease in the total quantity demanded of all goods