Deck 3: Supply and Demand

Question 1

In order to understand how the price of a good is determined in the free market, one must account for the desires of:

A)purchasers exclusively.
B)sellers exclusively.
C)governmental agencies exclusively.
D)purchasers and sellers.

Answer 1

purchasers and sellers.

Question 2

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

A)It has negative slope.
B)It shows the amount consumers are willing and able to purchase at various prices, holding other factors constant.
C)It relates the price of an item to the quantity demanded of that item.
D)It shows how an increase in price leads to an increase in quantity demanded of a good.

Answer 2

It shows how an increase in price leads to an increase in quantity demanded of a good.

Question 3

The demand curve illustrates the fact that consumers:

A)tend to purchase more of a good as its price rises.
B)purchase name brand products more frequently than generic products.
C)tend to purchase more of a good as its price falls.
D)purchase more of a good as their incomes rise.

Answer 3

tend to purchase more of a good as its price falls.

Question 4

"Holding all other relevant factors constant, consumers will purchase more of a good as the price falls." This statement reflects the behavior underlying:

A)the demand curve.
B)an increase in demand.
C)the supply curve.
D)a decrease in the demand curve.

Question 5

In a market, the demanders are the _______, and the suppliers are the ______.

A)bosses; workers
B)poor; wealthy
C)buyers; sellers
D)sellers; buyers

Question 6

You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger has increased from $2.50 to $2.99. You decide to have just one double cheeseburger for lunch. This is best described as a(n):

A)substitution effect.
B)income effect.
C)buyer's reservation price effect.
D)seller's reservation price effect.

Question 7

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 is as:

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

Question 8

In Cuba, a bureaucratic committee makes the production decisions for the country's firms and factories. Therefore, Cuba is an example of a:

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

Question 9

The quantity of Revlon nail polish demanded by Jen decreased after the price of Revlon nail polish increased. Jen decides to find a cheaper brand of nail polish. This is called a(n):

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

Question 10

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 11

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

A)Burger King's value meal price control.
B)McDonald's fries being the same everywhere in the U.S.
C)union wages.
D)New York City's rent control.

Question 12

Gertie saw a pair of jeans that she was willing to buy for $35. The price tag, though, 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 13

As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:

A)the income effect.
B)the change in equilibrium.
C)the substitution effect.
D)a shift in the demand curve.

Question 14

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 those tickets. You scalped, or sold, the third ticket just outside the entrance to the concert for slightly more than the price you had originally paid. Which transaction occurred in a market?

A)Only the advance purchase and sale at the University window was a market transaction.
B)Only the transaction that occurred the evening of the concert was a market transaction.
C)Both transactions, the one at the University ticket window as well as the sale at the concert entrance, occurred in markets.
D)Neither the advance sale at the University ticket window nor the sale the night of the concert occurred in markets.

Question 15

When the price of an item increases, buyers tend to purchase less of that item:

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 16

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

Question 17

Buyers and sellers of a particular good comprise the:

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

Question 18

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

A)only the demand curve.
B)only the supply curve.
C)a market.
D)the equilibrium.

Question 19

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

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

Question 20

One reason for the ________ slope of the demand curve is that as prices fall ________.

A)upward; people expect goods to be of lower quality.
B)upward; more people purchase the good.
C)downward; more people find that the price is less than their reservation price.
D)downward; fewer people find that the price equals their reservation price.

Question 21

The equilibrium price and quantity of any good or service is established by:

A)only demanders.
B)only suppliers.
C)government regulations.
D)both demanders and suppliers.

Question 22

Supply curves are generally _______ sloping because _______________.

A)downward; more consumers will buy the good if the price falls.
B)upward; of the principle of increasing opportunity costs.
C)downward; it is less expensive to mass-produce goods.
D)upward; of inflation.

Question 23

If the market for sport utility vehicles has excess supply, then one can say that:

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 24

A market in disequilibrium would feature:

A)a stable price.
B)consumers able to purchase all they wish at the market price.
C)a stable quantity.
D)either excess supply or excess demand.

Question 25

A seller's reservation price is generally equal to:

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

Question 26

Why does your grocery store sell day-old bakery goods but not day-old canned goods?

A)Canned goods are priced at the market equilibrium.
B)An excess supply of bakery goods will quickly spoil, but excess canned goods will not.
C)There is excess demand for canned goods.
D)Demand for canned goods is easier to predict.

Question 27

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

A)Excess supply is zero.
B)All consumers are able to purchase an amount equal to their quantity demanded.
C)Excess demand is zero.
D)The equilibrium price is stable, i.e., there is no pressure for it to change.

Question 28

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 fall.
D)decrease the quantity supplied to earn higher profits.

Question 29

Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that:

A)people don't like to live in your neighborhood anymore.
B)when housing prices rose, they started to exceed some of your neighbors' reservation prices.
C)the demand curve for housing in your town has shifted to the left while supply remained constant.
D)the supply curve for housing in your town has shifted to the right while demand has remained constant.

Question 30

A market comprised of a downward-sloping demand curve that intersects an upward-sloping supply curve is said to be stable because:

A)price will never change.
B)quantity will never change.
C)demand will never change.
D)at any price other than equilibrium, forces in the market move price towards the equilibrium.

Question 31

Whenever the quantity demanded is not equal to the quantity supplied, the quantity that is actually sold in the market is:

A)the quantity demanded.
B)the quantity supplied.
C)the smaller of the quantity demanded and the quantity supplied.
D)the greater of the quantity demanded and the quantity supplied.

Question 32

A shortage occurs when:

A)demand is greater than supply.
B)the equilibrium price is too high.
C)quantity demanded exceeds quantity supplied.
D)quantity supplied exceeds quantity demanded.

Question 33

As the price of a good rises:

A)firms earn larger profits.
B)more firms can cover their opportunity costs of producing the good.
C)firms find they can raise price by even more.
D)government regulation becomes more justified.

Question 34

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 35

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

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

Question 36

Sellers tend to offer _______ for sale as price increases, and so the supply curve is ______ sloping.

A)goods; not
B)more; downward
C)less; upward
D)more; upward

Question 37

Almost every holiday season at least one gift idea achieves fad status. When that happens, prices tend to increase dramatically. Why?

A)Sellers want to take advantage of people who received a year-end bonus.
B)Quantity demanded exceeds quantity supplied.
C)Too much government regulation in the market.
D)The demand curve for fad items is upward-sloping.

Question 38

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5, and that Curly has now begun operating a hot dog cart. We can assume that:

A)Curly's reservation price is $5.00 or more.
B)Curly's reservation price is exactly $4.50.
C)Curly's reservation price is greater than $4.50 but no more than $5.
D)Curly's reservation price is exactly $5.

Question 39

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. Moe's reservation price for a slice of pizza must be:

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

Question 40

You notice that your grocery store always has day-old bakery products at a reduced price. Why might that be?

A)At the original price, the quantity demanded was greater than the quantity supplied.
B)At the original price, there was a shortage of bakery products.
C)The original price was an equilibrium price because it was established in a free market.
D)At the original price, quantity supplied was greater than quantity demanded.

Question 41

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

A)Equitable distribution of apartments.
B)Excess demand for apartments.
C)Fewer newly built apartment buildings.
D)Very low vacancy rates.

Question 42

In the market for coffee, for many consumers:

A)tea is a substitute.
B)non-dairy creamer is a substitute.
C)cola beverages are complements.
D)coffee mugs are substitutes.

Question 43

According to the textbook, government price controls fail because:

A)they are not enforced.
B)legislation cannot repeal basic economic motives.
C)bureaucrats lack accurate market data.
D)firms ignore the restrictions.

Question 44

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

A)government needs to set a higher price.
B)suppliers, dissatisfied with growing inventories, will raise the price.
C)demanders, to acquire the good, will bid the price higher.
D)suppliers, dissatisfied with growing inventories, will lower the price.

Question 45

When a market is not in equilibrium:

A)government intervention is required to achieve equilibrium.
B)firms will increase contributions to political action committees.
C)the economic motives of sellers and buyers will move the market to its equilibrium.
D)it will simply stay in a state of disequilibrium.

Question 46

"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 for personal computers increases quantity demanded, not demand.

Question 47

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 at those schools is higher than at other schools in the state.
B)the wage for teachers at those schools is lower than the equilibrium wage.
C)there is an excess supply of teachers.
D)the reservation price among teachers is lower than for other professions.

Question 48

Suppose you bought a concert ticket from Ticketmaster for $50, but when you got to the concert scalpers (individuals who re-sell tickets at the event) were selling tickets in the same seating area as yours for $25. What is probably true?

A)There is excess demand for this concert at the Ticketmaster price.
B)The ticket you bought was under-priced for the market.
C)There is an excess supply of tickets for this concert at the Ticketmaster price.
D)The Ticketmaster price is an equilibrium price.

Question 49

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

A)government has set the price too high.
B)government has set the price above the equilibrium price.
C)buyers are hoarding prescription drugs.
D)government has set the price below the equilibrium price.

Question 50

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

A)suppliers, dissatisfied with growing inventories, will raise the price.
B)demanders, wanting to ensure they acquire the good, will bid the price lower.
C)government needs to set a lower price.
D)suppliers, dissatisfied with growing inventories, will lower the price.

Question 51

Suppose you notice that more and more people are driving gas-guzzling cars. Since you drive an economy car, their increased demand for gas:

A)does not affect you.
B)causes companies to charge a lower price, thus benefiting you.
C)causes the price you pay for gas to increase.
D)does not change the price you pay, but reduces the quantity of gas supplied.

Question 52

The tendency of markets to automatically gravitate toward equilibrium is an application of which core principle?

A)The Scarcity Principle
B)The Cost-Benefit Principle
C)The Principle of Comparative Advantage
D)The Incentive Principle

Question 53

A regulated maximum price that is above the equilibrium price:

A)will lead to black markets.
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 54

An increase in the quantity demanded of tea occurs whenever:

A)the population of tea drinkers grows.
B)the price of coffee rises.
C)tea drinkers receive an increase in their incomes.
D)the price of the tea falls.

Question 55

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

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

Question 56

Minimum wage laws are an example of:

A)mandated equilibrium wages.
B)a price ceiling.
C)a regulated price.
D)comparative advantage for unskilled workers.

Question 57

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

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

Question 58

When the price of a good is below its equilibrium value:

A)consumers will bid the price up.
B)excess supply will occur.
C)it will tend to stay below the equilibrium value.
D)suppliers will notice their inventories are growing.

Question 59

Which of following is NOT true of an equilibrium price?

A)Consumers 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 always a fair and just price.
D)Firms who are willing to accept the equilibrium price can sell what they produce.

Question 60

In a market where government has set the maximum price below the equilibrium price, one might expect:

A)quantity demanded to equal quantity supplied.
B)excess supply.
C)a black market to develop as individuals try to take advantage of unexploited opportunities.
D)quantity supplied to surpass quantity demanded.

Question 61

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.
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 62

As consumers' incomes decrease, the demand curve for bologna sandwiches shifts to the right. Therefore bologna sandwiches are:

A)normal goods.
B)complement goods.
C)substitute goods.
D)inferior goods.

Question 63

Assume consumers eat either rice or pasta for dinner every night. If the price of rice increases, in the pasta market one would expect to see:

A)an increase in the quantity of pasta demanded.
B)an increase in the demand for pasta.
C)a decrease in the quantity of pasta demanded.
D)a decrease in the demand for pasta.

Question 64

As consumers' incomes increase, the demand for ground beef decreases. Ground beef is called a(n):

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

Question 65

If the demand for steak increases as income increases, this means that steak is a(n):

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

Question 66

Suppose one observes that when the price of peanut butter increases, the demand for jelly increases. One must conclude that:

A)peanut butter and jelly are complements.
B)peanut butter and jelly are substitutes.
C)peanut butter and jelly are normal goods.
D)peanut butter and jelly are inferior goods.

Question 67

Suppose that the price of doughnuts decreases and that doughnut-holes are a by-product of producing doughnuts. One would expect:

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

Question 68

Whether or not a good can be classified as a complement depends on whether;

A)you personally tend to consume the goods together.
B)no substitutes exist.
C)an increase in demand for one good follows a decrease in the price of the other.
D)an increase in demand for one good follows an increase in the price of the other.

Question 69

Suppose one could either rent a car or take a train to travel to Chicago from Washington, D.C.If the price of train tickets increases:

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

Question 70

What might cause a demand function 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 71

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

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

Question 72

Suppose that a disease that affects people who consume beef has been discovered in the United States. One likely result is:

A)an increase in buyers' reservation prices for beef.
B)a decrease in demand for chicken.
C)a decrease in demand for beef.
D)a decrease in the quantity demanded of beef.

Question 73

If the price of computers increases and the demand for monitors decreases as a result, then:

A)computers and monitors are complements.
B)computers are a normal good and monitors are inferior.
C)computers and monitors are substitutes.
D)computers are an inferior good and monitors are normal.

Question 74

A decrease in the demand for bananas with no concurrent change in the supply of bananas will result in a ________ equilibrium price and a(n) ________ equilibrium quantity.

A)higher; lower
B)lower; lower
C)higher; unchanged
D)higher; higher

Question 75

At the beginning of the fall semester, college towns experience large increases in their populations, causing a(n):

A)decrease in the quantity of apartments demanded.
B)increase in the supply of apartments.
C)increase in the demand for apartments.
D)decrease in the quantity of apartments supplied.

Question 76

In the market for office workers:

A)there are no substitutes because each human is unique.
B)computers are complements.
C)an increase in wages will increase the number of workers demanded.
D)a decrease in wages will shift the demand for workers to the left.

Question 77

Suppose that the price of doughnuts decreases and 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

Suppose that two recent studies conclude that increased fiber in the diet does not reduce the risk of developing colon cancer as was previously thought. The likely result will be that the:

A)quantity demanded of high-fiber foods will fall.
B)demand for high-fiber foods will decrease.
C)supply of high-fiber foods will increase.
D)price of high-fiber foods will rise.

Question 79

Suppose the price of gasoline increases and that sport utility vehicles get poor gas mileage compared to other available cars. One would 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 of sport utility vehicles demanded to decrease.

Question 80

If the demand for computers shifts to the right as consumers' incomes rise, computers are

A)inferior goods.
B)complement goods.
C)normal goods.
D)substitute goods.