Deck 3: Supply and Demand: Theory

Question 1

A surplus will occur in a market when the price of the product is greater than the equilibrium price.

Answer 1

True

Question 2

If rice is an inferior good,a decrease in income will cause the equilibrium price of rice to rise.

Answer 2

True

Question 3

The market demand curve for a given product may be downward sloping even if no person in that market has a downward sloping demand curve.

Answer 3

True

Question 4

Consumers' surplus is the difference between the maximum price the buyer is willing and able to pay for a good and the actual price paid.

Question 5

Mutually beneficial trade between buyers and sellers drives a market to equilibrium.

Question 6

A simultaneous decrease in the demand and the supply of good X always leads to a decrease in the price of good X.

Question 7

A shortage in the bread market can cause the price of bread to rise.

Question 8

Supply curves are usually upward sloping.

Question 9

The terms scarcity and shortage are synonyms.

Question 10

In moving along a demand curve,everything is held constant except buyers' income.

Question 11

Economists use the terms neutral good and normal good interchangeably.

Question 12

The law of diminishing marginal utility helps to explain the direct relationship between price and quantity supplied.

Question 13

The law of diminishing marginal utility helps to explain why supply curves are generally upward sloping.

Question 14

The sum of consumers' surplus and producers' surplus is maximized at equilibrium.

Question 15

Another term for excess supply is shortage.

Question 16

If the government increased licensing requirements for beauty salons,the supply curve for salon services would shift to the left.

Question 17

When the price of Toyota Corollas rises,the demand for Corollas falls,ceteris paribus

Question 18

To an economist,an increase in demand means the same thing as an increase in quantity demanded.

Question 19

As long as the maximum buying price of a good is less than the minimum selling price of that good,an exchange will occur.

Question 20

A demand curve is the graphical representation of the law of demand.

Question 21

As the price of good X rises as a result of a decrease in supply,the demand for good Y falls.Therefore,goods X and Y are

A) substitutes for one another.
B) normal goods.
C) complements to one another.
D) inferior goods.
E) none of the above

Question 22

"As the price of apples goes up,the demand for apples goes down." The author of this statement

A) implies that price and demand are unrelated.
B) uses the word "demand" when he should use the word "supply."
C) uses the word "demand" when he should use the words "quantity demanded."
D) implies that demand and price have a direct relationship.

Question 23

At a price of $15 each,Marta buys 4 books per month.When the price increases to $20,Marta buys 3 books per month.Luz says that Marta's demand for books has decreased.Is Luz correct?

A) Yes,Luz is correct.
B) No,Luz is incorrect.Marta's demand has increased.
C) No,Luz is incorrect.Marta's quantity demanded has decreased,but her demand has stayed the same.
D) No,Luz is incorrect.Marta's quantity demanded has increased,but her demand has stayed the same.
E) No,Luz is incorrect.Marta's quantity demanded has decreased and her demand has increased.

Question 24

Which of the following is true about the relationship between price and quantity supplied?

A) There is always a direct relationship between price and quantity supplied.
B) There is always an inverse relationship between price and quantity supplied.
C) There is usually a direct relationship between price and quantity supplied.
D) There is usually an inverse relationship between price and quantity supplied.

Question 25

On the basis of the law of demand,it is more likely that a person will lose his temper when the price of losing his temper is low than when it is high.

Question 26

The law of demand states that price and quantity demanded are

A) directly related,ceteris paribus.
B) inversely related,ceteris paribus.
C) independent.
D) positively related,ceteris paribus.

Question 27

If the quantity demanded of good X is greater than the quantity supplied of good X,then the market for good X is in disequilibrium.

Question 28

As the price of good A rises as a result of a decrease in the supply of good A,the demand for good B rises.Therefore,goods A and B are

A) normal goods.
B) inferior goods.
C) substitutes for one another.
D) complements to one another.
E) none of the above

Question 29

Which of the following illustrates the law of demand?

A) Jorge buys fewer pencils at $2 per pencil than at $1 per pencil,ceteris paribus.
B) Chen buys more ice cream at $4 per half-gallon than at $3 per half gallon,ceteris paribus.
C) Karissa buys fewer sweaters at $50 each than at $35 each,ceteris paribus.
D) a,b,and c
E) a and c

Question 30

If people begin to favor science fiction novels to a greater degree than previously,the demand curve for science fiction novels

A) shifts rightward.
B) shifts leftward.
C) stays constant.
D) can shift either rightward or leftward.

Question 31

Demand takes into account goods,but not services.

Question 32

An increase in the number of buyers in a particular market for a good will result in a ___________________ for that good.

A) movement up along the demand curve
B) movement down along the demand curve
C) leftward shift in the demand curve
D) rightward shift in the demand curve

Question 33

A demand schedule is a numerical tabulation of the ___________________ of a good at different ____________________.

A) quantity supplied; prices
B) quantity demanded; incomes
C) quantity demanded; prices
D) quantity supplied; incomes

Question 34

One major reason for the law of demand is that

A) one price changing requires at least one other price to change in the opposite direction.
B) people substitute relatively lower-priced goods for relatively higher-priced goods.
C) a higher price never reduces quantity demanded by enough to lower total revenue.
D) people are willing to produce more units at a higher price.

Question 35

The law of supply states that price and quantity supplied are

A) inversely related,ceteris paribus.
B) directly related,ceteris paribus.
C) not related.
D) fixed.

Question 36

If Max's demand for hot dogs falls as his income rises,then for Max hot dogs are

A) a bad good.
B) an inferior good.
C) a preferential good.
D) a normal good.
E) a neutral good.

Question 37

In general,all markets equilibrate at the same speed.

Question 38

If the demand curve for a good shifts leftward,

A) quantity demanded is less at each price.
B) quantity demanded remains constant at each price.
C) quantity demanded is greater at each price.
D) demand is greater at each price.

Question 39

When the price of carrots falls,the quantity demanded of carrots rises,ceteris paribus.

Question 40

An increase in supply is graphically represented by a leftward shift of the supply curve.

Question 41

On a supply-and-demand diagram,equilibrium is found

A) where the supply curve intercepts the vertical axis.
B) where the demand curve intercepts the horizontal axis.
C) where the demand and supply curves intersect.
D) at every point on either curve

Question 42

Oil producers expect that oil prices next year will be higher than oil prices this year.As a result,oil producers are most likely to

A) place more oil on the market this year,thus shifting the present supply curve of oil rightward.
B) hold some oil off the market this year,thus shifting the present supply curve of oil leftward.
C) place more oil on the market this year,thus increasing the quantity supplied of oil at lower but not higher prices.
D) hold some oil off the market this year,thus decreasing the quantity supplied of oil at lower but not higher prices.

Question 43

At a price below the equilibrium price,there is

A) a surplus.
B) a shortage.
C) excess supply.
D) sub-equilibrium.
E) none of the above

Question 44

Suppose that for a given good,demand decreases and supply decreases at the same time.If demand decreases by a greater amount than supply decreases,then equilibrium price __________ and equilibrium quantity __________ for that good.

A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Question 45

The fundamental reason why most supply curves are upward sloping is that

A) consumers substitute lower-priced goods for higher-priced goods.
B) the quantity supplied increases as more firms enter the market.
C) a higher price never reduces quantity supplied by enough to lower total revenue and so higher production is motivated.
D) higher production raises the opportunity costs of production and so price must rise to induce more output.

Question 46

At a price for which quantity demanded exceeds quantity supplied,a __________ is experienced,which pushes the price __________ toward its equilibrium value.

A) surplus; downward
B) surplus; upward
C) shortage; downward
D) shortage; upward

Question 47

Suppose that for a given good demand increases and supply decreases at the same time.If demand increases by a lesser amount than supply decreases,then equilibrium price __________ and equilibrium quantity __________ for that good.

A) rises; falls
B) falls; falls
C) rises; rises
D) falls; rises

Question 48

Resource X is necessary to the production of good Y.If the price of resource X rises,

A) the supply curve of Y shifts leftward.
B) the supply curve of Y shifts rightward.
C) the supply curve of Y is unaffected.
D) there is a movement down the supply curve of Y.
E) there is a movement up the supply curve of Y.

Question 49

Oil producers expect that oil prices next year will be lower than oil prices this year.As a result,oil producers are most likely to

A) place more oil on the market this year,thus shifting the present supply curve of oil rightward.
B) hold some oil off the market this year,thus shifting the present supply curve of oil leftward.
C) place more oil on the market this year,thus increasing the quantity supplied of oil at lower but not higher prices.
D) hold some oil off the market this year,thus decreasing the quantity supplied of oil at lower but not higher prices.

Question 50

On a supply-and-demand diagram,quantity demanded equals quantity supplied

A) only at the single equilibrium price.
B) at every price at or above the equilibrium price.
C) at every price at or below the equilibrium price.
D) at every price.

Question 51

On a supply-and-demand diagram,consider a price for which the horizontal distance to the supply curve is shorter than the horizontal distance to the demand curve.There is a __________ at that price and the current price must be __________ the equilibrium price.

A) shortage; above
B) shortage; below
C) surplus; above
D) surplus; below

Question 52

Suppose that for a given good demand increases and supply increases at the same time.If demand increases by a lesser amount than supply increases,then equilibrium price __________ and equilibrium quantity __________ for that good.

A) rises; falls
B) falls; falls
C) rises; rises
D) falls; rises

Question 53

Which of the following will not shift a supply curve?

A) a change in the price of relevant resources
B) a change in the good's own price
C) a change in the number of sellers
D) a change in per-unit costs brought about by a change in taxes

Question 54

If the supply curve and the demand curve for lettuce both shift to the left by an equal amount,what can we say about the resulting changes in equilibrium price and quantity?

A) The price will increase,but the quantity may increase or decrease.
B) The price will increase,and the quantity will increase.
C) The price will decrease,and the quantity will increase.
D) The price will stay the same,but the quantity will increase.
E) The price will stay the same,but the quantity will decrease.

Question 55

On a supply-and-demand diagram,consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve.There is a __________ at that price and the current price must be __________ the equilibrium price.

A) shortage; above
B) shortage; below
C) surplus; above
D) surplus; below

Question 56

An advance in technology in the production of good X causes

A) a rightward shift in the supply curve for good X.
B) a leftward shift in the supply curve for good X.
C) the supply curve for good X to change from upward sloping to vertical.
D) the supply curve for good X to change from vertical to upward sloping.

Question 57

At a price above the equilibrium price,there is

A) a shortage.
B) a surplus.
C) excess demand.
D) super-equilibrium.
E) none of the above

Question 58

Suppose the government decides that every family should own its own home.To bring this about,the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build.As a result of this,

A) the supply curve of new houses would shift leftward,since it now costs $10,000 more for builders to produce a house.
B) the demand curve for new houses would shift rightward,since now every family would want to buy a house.
C) the demand curve for new houses would shift leftward.
D) the supply curve of new houses would shift rightward,since builders would be willing to produce and sell more houses at each given price.
E) c and d

Question 59

If the workers of a firm successfully negotiate an increase in wages,which of the following is most likely to happen?

A) The demand curve for the product the firm produces shifts rightward.
B) The demand curve for the product the firm produces shifts leftward.
C) The supply curve of the product the firm produces shifts rightward.
D) The supply curve of the product the firm produces shifts leftward.

Question 60

Suppose that good X is one of the more heavily subsidized industries in the United States.Suppose further that as a result of intense lobbying from health-related concerns,Congress repeals the subsidies on good X.Which of the following scenarios would likely occur?

A) The supply curve for good X would shift rightward,as it would now be cheaper to produce each level of output.
B) The supply curve for good X would shift leftward,since it would now cost more to produce each level of output.
C) There would be no shift in the supply curve for good X; subsidies don't affect output.
D) There would be a movement along the supply curve for good X,but the supply curve would not shift.

Question 61

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Refer to Exhibit 3-3.A movement from point Z to point W would have been the result of

A) a reduction in the price of good Y.
B) an increase in taxes paid by the producers of good Y.
C) a decline in technology in the production of good Y.
D) an increase in the number of buyers of good Y.

Question 62

Refer to Exhibit 3-1.Equilibrium price and quantity are ____________________,respectively.

A) $2 and 250 units
B) $4 and 250 units
C) $2 and 150 units
D) $6 and 250 units
E) none of the above

Question 63

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Refer to Exhibit 3-3.A movement from point W to point Z would have been the result of

A) a reduction in the price of good Y.
B) an increase in the number of buyers in the area where good Y is being sold.
C) a decrease in business taxes paid by the producers of good Y.
D) a decrease in the number of buyers in the area where good Y is being sold.
E) an increase in the price of good Y.

Question 64

Refer to Exhibit 3-4.A price of $6 in this market will result in a

A) shortage of 10 units.
B) surplus of 10 units.
C) surplus of 5 units.
D) shortage of 5 units.

Question 65

Suppose that for a given good demand decreases and supply increases at the same time.If demand decreases by a greater amount than supply increases,then equilibrium price __________ and equilibrium quantity __________ for that good.

A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Question 66

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Refer to Exhibit 3-2.Which of the following would result in a movement from point B on D₂ to point A on D₁?

A) There was an increase in income (assuming that good X is an inferior good)and technology remained constant.
B) There was an increase in income (assuming that good X is a normal good)and technology remained constant
C) There was an increase in income (assuming that good X is an inferior good)and technology improved.
D) There was an increase in income (assuming that good X is a normal good)and technology declined.

Question 67

Refer to Exhibit 3-4.If this is a competitive market,price and quantity will gravitate toward

A) $6 and 10 units,respectively.
B) $6 and 20 units,respectively.
C) $4 and 15 units,respectively.
D) $2 and 15 units,respectively.

Question 68

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Refer to Exhibit 3-2.Which of the following would result in a movement from point A on D₁ to point B on D₂?

A) an increase in a per-unit tax on good X
B) an increase in income of the buyers of good X,assuming good X is an inferior good
C) a decline in technology in the production of good X
D) an increase in income of the buyers of good X,assuming good X is a normal good

Question 69

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Refer to Exhibit 3-2.Suppose equilibrium is at point A.Something then changes and equilibrium becomes point C.Which of the following is consistent with the change in equilibrium from point A to C (assuming that good X is a normal good)?

A) There was an increase in income and production technology advanced.
B) There was a decrease in income and production technology advanced.
C) There was an increase in preferences for good X and an increase in wage rates (a relevant resource price.)
D) There was an improvement in technology in the production of good X and an increase in wage rates (a relevant resource price.)

Question 70

An increase in the price of good B resulting from a decrease in the supply of B caused an increase in the demand for good C.This indicates that goods B and C are

A) complements.
B) substitutes.
C) neither substitutes nor complements.
D) normal goods.

Question 71

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Refer to Exhibit 3-3.A shift in demand from D₁ to D₂ can NOT occur from a change in the

A) population.
B) price of a substitute for good Y.
C) average income of good Y buyers.
D) price of good Y.

Question 72

A rightward shift in the demand curve for tennis balls would most likely be caused by

A) a fall in the price of tennis balls.
B) a fall in the price of tennis rackets.
C) a rise in the price of tennis lessons.
D) a fall in income,assuming tennis balls are a normal good.

Question 73

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Refer to Exhibit 3-2.Suppose equilibrium is at point B.Something then changes and equilibrium becomes point C.Which of the following is consistent with the change in equilibrium from point B to C (assuming that good X is a normal good)?

A) There was an increase in resource prices and income stayed constant.
B) There was a decrease in resource prices and income stayed constant.
C) There was an increase in resource prices and income decreased.
D) There was an increase in resource prices and income increased.

Question 74

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Refer to Exhibit 3-2.Suppose equilibrium is at point C.Something then changes and equilibrium becomes point B.Which of the following is consistent with the change in equilibrium from point C to B (assuming that good X is a normal good)?

A) There was an increase in resource prices and income stayed constant.
B) There was a decrease in resource prices and income stayed constant.
C) There was an increase in resource prices and income decreased.
D) There was a decrease in resource prices and income increased.

Question 75

Refer to Exhibit 3-1.At a price of $2 there is a

A) shortage of 100 units.
B) shortage of 200 units.
C) shortage of 150 units.
D) surplus of 200 units..
E) surplus of 150 units.

Question 76

Refer to Exhibit 3-4.A price of $2 in the market will result in a

A) shortage of 10 units.
B) surplus of 10 units.
C) surplus of 5 units.
D) shortage of 5 units.

Question 77

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Refer to Exhibit 3-3.A movement from point V to point W could not have been the result of

A) a increase in the price of good Y.
B) an increase in good Y buyers' income (assuming that good Y is an inferior good).
C) an increase in the price of a complement to good Y.
D) a decrease in the number of buyers of good Y.
E) a decrease in good Y buyers' income (assuming that good Y is a normal good).

Question 78

Refer to Exhibit 3-1.At a price of $6 there is a

A) surplus of 100 units.
B) surplus of 150 units.
C) surplus of 200 units.
D) shortage of 150 units.
E) shortage of 200 units.

Question 79

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If the supply of and demand for a product decrease at the same time,then equilibrium

A) quantity and equilibrium price must both decline.
B) quantity must decline,but equilibrium price may either rise,fall,or remain unchanged.
C) price must fall,but equilibrium quantity may either rise,fall,or remain unchanged.
D) quantity must fall and equilibrium price must rise.

Question 80

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Refer to Exhibit 3-2.Suppose equilibrium is at point A.Something then changes and equilibrium becomes point C.Which of the following is consistent with the change in equilibrium from point A to C (assuming that good X is a normal good)?

A) There was a decrease in the number of buyers and business taxes increased.
B) There was an increase in the number of buyers and business taxes decreased.
C) There was an increase in the number of buyers and business taxes increased.
D) There was a decrease in the number of buyers and business taxes decreased.