Deck 2: Supply and Demand

Question 1

The buyer's reservation price for a particular good or service is the:

A) smallest price the buyer would be willing to pay for it.
B) same as the market price.
C) largest price the buyer would be willing to pay for it.
D) price the buyer must pay to ensure he or she gets it.

Answer 1

largest price the buyer would be willing to pay for it.

Question 2

A demand curve is ______ sloping because ______.

A) downward; of increasing opportunity costs
B) upward; people prefer to purchase high-quality consumer goods
C) downward; reservation prices tend to fall over time
D) downward; fewer people are willing to buy an item at higher prices

Answer 2

downward; fewer people are willing to buy an item at higher prices

Question 3

The entire group of buyers and sellers of a particular good or service makes up:

A) the demand curve.
B) the supply curve.
C) the market.
D) the equilibrium price and quantity.

Answer 3

the market.

Question 4

Which of the following is NOT true of a demand curve?

A) It has negative slope.
B) It shows the amount consumers want to buy at various prices.
C) It relates the price of an item to the quantity demanded of that item.
D) It reflects sellers' reservations prices.

Question 5

You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as:

A) the substitution effect of a price change.
B) the income effect of a price change.
C) a decrease in the buyer's reservation price.
D) an increase in the buyer's reservation price.

Question 6

When the price of a good changes, the amount of that good that buyers wish to buy changes:

A) solely because of the substitution effect.
B) solely because of the income effect.
C) because of both the substitution and the income effects.
D) only if the substitution effect and the income effect do not cancel out each other.

Question 7

Suppose you bought three tickets to a concert in advance at the University ticket window. At the last minute one friend cancelled, so you could use only two of the tickets. You sold the third ticket just outside the entrance to the concert for more than the price you had originally paid. Which transaction occurred in a market?

A) The advance purchase at the University was the only market transaction.
B) The sale that occurred at the concert entrance was the only market transaction.
C) Both the purchase at the University ticket window and the sale at the concert entrance were market transactions.
D) Neither the purchase at the University ticket window nor the sale at the concert entrance was a market transaction.

Question 8

As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called:

A) the income effect of a price change.
B) a decrease in reservation price.
C) the substitution effect of a price change.
D) a decrease in demand.

Question 9

The demand curve illustrates the fact that consumers tend to purchase:

A) more of a good as it becomes more popular.
B) name-brand products more frequently than generic products.
C) more of a good as its price falls.
D) more of a good as their incomes rise.

Question 10

Suppose that as the price of apples rises, people switch from eating apples to eating oranges. This is known as:

A) the normal effect of a price change.
B) the income effect of a price change.
C) a decrease in the demand for apples.
D) the substitution effect of a price change.

Question 11

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag said they were $29.99. Therefore:

A) Gertie should not buy the jeans because they will be of lower quality than she expected.
B) Gertie should not buy the jeans because the price is not equal to her reservation price.
C) Gertie should buy the jeans because the price is less than her reservation price.
D) Gertie should buy the jeans because the price is more than her reservation price.

Question 12

A good example of central planning at work in the U.S. is:

A) car manufacturers establishing suggested retail prices.
B) McDonald's fries being the same everywhere.
C) unions working with businesses to establish wages.
D) New York City's rent control program.

Question 13

If a country's economic decisions are made by an individual or small number of individuals, then it has a:

A) centralized economy.
B) free-market economy.
C) capitalist economy.
D) open economy.

Question 14

To understand how the price of a good is determined in a free market, one must account for the interests of:

A) only buyers.
B) only sellers.
C) neither buyers nor sellers.
D) buyers and sellers.

Question 15

Shelly purchases a leather purse for $400. One can infer that:

A) she paid too much.
B) her reservation price was at least $400.
C) her reservation price was exactly $400.
D) her reservation price was less than $400.

Question 16

Buyers and sellers of a particular good make up the:

A) market for the good.
B) demand for the good.
C) supply for the good.
D) production possibilities curve for the good.

Question 17

After the price of Revlon nail polish increased, Jen stopped buying Revlon nail polish and started buying a cheaper brand of nail polish instead. This is called:

A) the substitution effect of a price change.
B) the income effect of a price change.
C) a decrease in the buyer's reservation price.
D) a decrease in the seller's reservation price.

Question 18

Suppose you camped out in front of an electronics store to be one of the 200 lucky people able to purchase the latest gaming system. You bought the system for $350. Two weeks later you see that the same system can be sold on e-Bay for $600, so you sell your system. Your market role was as a:

A) consumer in both markets.
B) consumer at the electronics store and a seller on e-Bay.
C) consumer at the electronics store; the e-Bay transaction did not occur in a market.
D) seller in both markets.

Question 19

One reason the demand curve slopes ______ is that as prices fall ______.

A) upward; more people find that the price is now less than their reservation price.
B) upward; fewer people find that the price is now less than their reservation price.
C) downward; more people find that the price is now less than their reservation price.
D) downward; fewer people find that the price is now less than their reservation price.

Question 20

"All else constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:

A) the demand curve.
B) a change in demand.
C) the supply curve.
D) a change in supply.

Question 21

The supply curve illustrates that firms:

A) increase the supply of a good when its price rises.
B) increase the quantity supplied of a good when its price rises.
C) decrease the quantity supplied of a good when input prices rise.
D) decrease the supply of a good when its price rises.

Question 22

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

A) at least $5.00.
B) $4.50.
C) greater than $4.50 but no more than $5.00.
D) $5.00.

Question 23

Refer to the figure below. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be:

A) $4.
B) less than $4.
C) greater than $6.
D) greater than $4.

Question 24

If price is above the equilibrium price, then there will be:

A) both excess supply and excess demand.
B) neither excess supply nor excess demand.
C) excess supply.
D) excess demand.

Question 25

When a market is in equilibrium:

A) there is either excess demand or excess supply.
B) both excess demand and excess supply are positive.
C) both excess demand and excess supply are positive and equal to each other.
D) there is neither excess demand nor excess supply.

Question 26

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:

A) marginal revenue.
B) equilibrium price.
C) reservation price.
D) producers surplus.

Question 27

The quantity that sellers wish to sell tends to ______ as price increases, and so the supply curve is ______ sloping.

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

Question 28

Which of the following is NOT a characteristic of a market in equilibrium?

A) There is neither excess supply nor excess demand.
B) Neither buyers nor sellers want the price to change.
C) Sellers can sell as many units as they want at the equilibrium price.
D) Buyers can buy as many units as they want at the equilibrium price.

Question 29

Refer to the figure below. At a price of $3, there will be:

A) an excess demand of 5 units.
B) an excess demand of 7 units.
C) an excess supply of 7 units.
D) an excess supply of 2 units.

Question 30

Refer to the figure below. At a price of $9, there will be:

A) an excess demand of 5 units.
B) an excess supply of 6 units.
C) an excess demand of 1 unit.
D) an excess supply of 5 units.

Question 31

If there is an excess supply of sport utility vehicles, then:

A) supply is greater than demand.
B) quantity supplied is greater than quantity demanded.
C) demand is greater than supply.
D) quantity demanded is greater than quantity supplied.

Question 32

The price of bananas will increase in response to:

A) an excess supply of bananas.
B) an excess demand for bananas.
C) an increase quantity of bananas supplied.
D) an increase in the supply of bananas.

Question 33

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______.

A) $8; 6
B) $6; 4
C) $4; 6
D) $2; 8

Question 34

Excess demand occurs:

A) whenever the market is in equilibrium.
B) whenever the market is not in equilibrium.
C) when price is above the equilibrium price.
D) when price is below the equilibrium price.

Question 35

Equilibrium price and quantity are determined by:

A) demand.
B) supply.
C) government regulations.
D) both supply and demand.

Question 36

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

A) less than $1.75.
B) at least $1.75 but less than $2.
C) exactly $1.75.
D) exactly $2.00.

Question 37

A seller's reservation price is generally equal to:

A) the buyer's reservation price.
B) the seller's opportunity cost of producing an additional unit.
C) the seller's marginal benefit from producing an additional unit.
D) the market price.

Question 38

A seller's reservation price is generally equal to:

A) the buyer's reservation price.
B) the seller's average cost.
C) the seller's marginal cost.
D) the market price.

Question 39

As the price of a good rises:

A) firms generally decrease the supply of the good.
B) more firms can cover their opportunity cost of producing the good.
C) firms generally increase the supply of the good.
D) government regulation becomes more justified.

Question 40

When the current price of a good is below the equilibrium price:

A) buyers have an incentive to offer to pay sellers more than the current price.
B) there will be excess supply.
C) the price will tend to stay below the equilibrium price.
D) sellers will notice their inventories are growing.

Question 41

Refer to the figure below. There would be an excess supply of 25 at a price of ______.

A) $20
B) $35
C) $45
D) $50

Question 42

Which of the following is NOT a characteristic of rent controls?

A) Greater availability of apartments.
B) Excess demand for apartments.
C) Fewer newly built apartment buildings.
D) Lower expenditures on maintenance.

Question 43

Which of following is NOT true of the equilibrium price?

A) Buyers who are willing to pay the equilibrium price can acquire the good.
B) It measures the value of the last unit sold to consumers.
C) It is fair in the sense that everyone can afford basic goods and services.
D) Sellers who are willing to accept the equilibrium price can sell what they produce.

Question 44

According to the textbook, government price controls fail because:

A) they are not enforced by government.
B) legislation cannot alter basic economic incentives.
C) bureaucrats lack accurate market data.
D) firms ignore the price controls.

Question 45

Refer to the figure below. The equilibrium price is ______, and the equilibrium quantity is ______.

A) $30; 15
B) $25; 20
C) $25; 5
D) $35; 20

Question 46

Suppose that when the price of broccoli is $4 per pound, buyers wish to buy 500 pounds per day and sellers wish to sell 800 pounds per day. In this case:

A) excess supply will lead the price of broccoli to fall
B) excess demand will lead the price of broccoli to fall
C) excess supply will lead the price of broccoli to rise
D) excess demand will lead the price of broccoli to rise

Question 47

In a free market, if the price of a good is below the equilibrium price, then;

A) the government will set a higher price to reestablish the market equilibrium.
B) sellers, dissatisfied with growing inventories, will raise their prices.
C) buyers, hoping to ensure they acquire the good, will bid the price higher.
D) sellers, dissatisfied with growing inventories, will lower their prices.

Question 48

In a market in which the government has set a price ceiling below the equilibrium price:

A) the quantity demanded will equal quantity supplied.
B) there will be excess supply.
C) a black market might develop.
D) quantity supplied will exceed quantity demanded.

Question 49

Refer to the figure below. Suppose all the sellers in this market started out charging a price of $45 per unit. What is the most likely result?

A) They would all make a large profit because $45 is more than the equilibrium price.
B) They would all just break even because $45 is their reservation price.
C) They would lower their prices because at $45 there would be excess supply.
D) They would lower their prices because at $45 there would be excess demand.

Question 50

Suppose that when the price of oranges is $3 per pound, the quantity demanded is 4.7 tons per day and the quantity supplied is 3.9 tons. In this case:

A) excess demand will lead the price of oranges to rise
B) excess supply will lead the price of oranges to fall
C) excess demand will lead the price of oranges to fall
D) excess supply will lead the price of oranges to rise

Question 51

A price ceiling that is set above the equilibrium price:

A) will lead to a black market.
B) will have no effect on the market.
C) will lead to excess supply in the market.
D) will lead to excess demand in the market.

Question 52

Refer to the figure below. If the government imposed a price ceiling of $40, what would happen in this market?

A) There would be excess supply.
B) There would be excess demand.
C) The price ceiling would have no effect.
D) The equilibrium quantity would fall.

Question 53

A movement along a demand curve from one price-quantity combination to another is called a:

A) change in quantity demanded.
B) shift in the demand curve.
C) change in demand.
D) change in quantity supplied.

Question 54

Refer to the figure below. If the current market price were $20:

A) the market would be in equilibrium.
B) there would be an excess supply of 25 units.
C) there would be an excess demand of 25 units.
D) there would be an excess demand of 35 units.

Question 55

Suppose you drive a car that gets good gas mileage, and you notice that more and more people are driving gas-guzzling cars. Their increased demand for gas:

A) does not affect you.
B) is likely to cause the price you pay for gas to decrease.
C) it likely to cause the price you pay for gas to increase.
D) does not change the price you pay, but it reduces the quantity of gas supplied.

Question 56

In a free market, if the price of a good is above the equilibrium price, then;

A) sellers, dissatisfied with growing inventories, will raise their prices.
B) buyers, hoping to ensure they acquire the good, will bid the price lower.
C) the government will set a lower price to reestablish the market equilibrium.
D) sellers, dissatisfied with growing inventories, will lower their prices.

Question 57

When a market is not in equilibrium:

A) government intervention is required to achieve equilibrium.
B) there is neither excess supply nor excess demand.
C) the economic motives of sellers and buyers will move the market to its equilibrium.
D) a change in either supply or demand is required to reestablish equilibrium.

Question 58

Suppose you bought a concert ticket from Ticketmaster for $50, but when you get to the concert, there are a large number of people waiting outside who offer to pay you more than $50 for your ticket. What is probably true?

A) There is an excess demand for tickets at the Ticketmaster price.
B) The Ticketmaster price was above the equilibrium price.
C) There is an excess supply of tickets at the Ticketmaster price.
D) The Ticketmaster price is the equilibrium price.

Question 59

Suppose one knows two facts: first, the market for prescription drugs experiences chronic shortages and second, the government sets the price for prescription drugs. One can conclude that the government has:

A) set the price too high.
B) set the price above the equilibrium price.
C) encouraged buyers to hoard prescription drugs.
D) set the price below the equilibrium price.

Question 60

You have noticed that there is a persistent shortage of teachers in an inner-city school district in your state. Based on this observation, you suspect that:

A) the wage for teachers in that district is higher than the wage in other districts.
B) the wage for teachers in that district is lower than the equilibrium wage.
C) there is an excess supply of teachers in other districts.
D) the demand for teachers in the inner-city school district is too low.

Question 61

A decrease in the price of pizza will lead to a(n):

A) increase in the demand for pizza.
B) increase in the quantity of pizza demanded.
C) decrease in the quantity of pizza demanded.
D) decrease in the number of consumers.

Question 62

Suppose sport utility vehicles get poor gas mileage compared to other available cars. If the price of gasoline increases, then one would then expect:

A) the demand for gasoline to decrease.
B) the demand for sport utility vehicles to decrease.
C) the demand for sport utility vehicles to increase.
D) the quantity demanded of sport utility vehicles to decrease.

Question 63

If an increase in income leads to a decrease in the demand for ground beef, then ground beef is a(n):

A) normal good.
B) complementary good.
C) substitute good.
D) inferior good.

Question 64

If the price of doughnuts decreases, then one would expect the:

A) supply of doughnuts to decrease.
B) quantity of doughnuts supplied to decrease.
C) supply of doughnuts to increase.
D) quantity of doughnuts supplied to increase.

Question 65

Office workers and word processing programs are complements if:

A) an increase in the price of word processing programs leads to an increase in the demand for office workers.
B) a decrease in the wage paid to office workers leads to an increase in the demand for word processing programs.
C) they perform similar functions.
D) a decrease in the wage paid to office workers leads to a leftward shift in the demand for word processing programs.

Question 66

If the demand for steak increases as income increases, then steak is a(n):

A) complementary good.
B) normal good.
C) inferior good.
D) substitute good.

Question 67

Suppose the residents of Metropolis travel to work either by bus or train. If the price of train tickets increases, then:

A) the demand for train tickets will increase.
B) the demand for bus tickets will increase.
C) the demand for train tickets will decrease.
D) the demand for bus tickets will decrease.

Question 68

An increase in the quantity of tea demanded occurs if:

A) the population of tea drinkers grows.
B) the price of coffee rises.
C) the income of tea drinkers increases.
D) the price of the tea falls.

Question 69

If the demand for olives falls when the price of cheese falls, then we know that cheese and olives are:

A) normal goods
B) complements
C) substitutes
D) inferior goods

Question 70

If the demand curve for bologna shifts to the right as income falls then bologna is a(n):

A) normal good.
B) complementary good.
C) substitute good.
D) inferior good.

Question 71

If an increase in the price of good X leads to a decrease in the demand for good Y, then:

A) good X and good Y are complements.
B) good X and good Y are normal goods.
C) good X and good Y are substitutes.
D) good X is a normal good and good Y is an inferior good.

Question 72

For two goods, X and Y, to be classified as substitutes, it must be the case that:

A) X and Y are identical.
B) consumers tend to purchase both items together.
C) when the price of X rises, the demand for Y decreases.
D) when the price of X rises, the demand for Y increases.

Question 73

What might cause a demand curve to shift to the right?

A) An increase in the price of a substitute.
B) An increase in the product's own price.
C) An increase in the price of a complement.
D) A decrease in the price of a substitute.

Question 74

If the demand for cucumbers falls when the price of tomatoes rises, then we know that tomatoes and cucumbers are:

A) substitutes
B) complements
C) inferior goods
D) normal goods

Question 75

"As the price of personal computers continues to fall, demand increases." This headline is inaccurate because:

A) a change in the price of personal computers shifts the demand curve.
B) a change in the price of personal computers shifts the supply curve.
C) the statement is backwards: increased demand leads to lower prices.
D) a falling price of personal computers increases the quantity demanded, not demand.

Question 76

If the demand for computers increases as consumers' incomes rise, then computers are:

A) an inferior good.
B) a complementary good.
C) a normal good.
D) a substitute good.

Question 77

Suppose that the price of doughnuts decreases. Given that doughnut-holes are a by-product of producing doughnuts, one would expect:

A) the supply of doughnut holes to decrease.
B) the supply of doughnuts to decrease.
C) the supply of doughnut holes to increase.
D) the supply of doughnuts to increase.

Question 78

Two goods are complements if:

A) people tend to consume either one or the other.
B) there are no substitutes for either of them.
C) an increase in the price of one good leads to a decrease in demand for the other.
D) an increase in the price of one good leads to in increase in demand for the other.

Question 79

If the demand for a good decreases as income decreases, then the good is a(n):

A) complementary good.
B) normal good.
C) inferior good.
D) substitute good.

Question 80

It is likely that for most people:

A) coffee and tea are substitutes.
B) coffee and non-dairy creamer are substitutes.
C) coffee and Coke are complements.
D) coffee and coffee mugs are substitutes.