Deck 3: Extensions of Demand and Supply Analysis

Question 1

In a market system,the costs associated with exchanging goods are known as

A)voluntary costs.
B)signaling costs.
C)wholesale costs.
D)transaction costs.

Answer 1

transaction costs.

Question 2

The price system

A)is the voluntary exchange system used in the United States.
B)is old fashioned and is no longer used.
C)is used only in countries that are developing.
D)is used to set resource prices only.

Answer 2

is the voluntary exchange system used in the United States.

Question 3

In a market system,intermediaries in the exchange process are known as

A)producers.
B)consumers.
C)middlemen.
D)free agents.

Answer 3

middlemen.

Question 4

In the price system,

A)prices are set by government action.
B)consumers alone set the price.
C)producers alone set the price.
D)prices are set by the interaction of supply and demand.

Question 5

The signals in markets are determined

A)by supply and demand.
B)for all goods by the government through the use of price controls.
C)in an unfair manner that ends up hurting the poor.
D)by nonprice rationing devices.

Question 6

In a price system,changes in prices

A)make it difficult for the system to function well.
B)imply that people have made mistakes in the past.
C)signal to everyone in the system what goods are relatively more or less scarce.
D)signal to policy makers what goods should and should not be taxed more.

Question 7

Which of the following is NOT an example of a transaction cost?

A)The enjoyment of owning the good.
B)The opportunity cost of time spent looking for stores that sold the good desired.
C)The cost of returning a defective product.
D)Time spent bargaining over the price of a good.

Question 8

Voluntary exchange

A)will eliminate scarcity.
B)is a nonprice rationing device.
C)is trading so that the consumer and producers are better off.
D)never involves transactions costs.

Question 9

The price of milk increases.Which of the following is NOT part of the likely chain of events that follows from this price change?

A)Some milk consumers reduce their consumption of milk.
B)Milk producers increase their production of milk.
C)The producers of feed for dairy cows increase production.
D)The manufacturers of milking machines lay off some workers.

Question 10

An economic system in which relative prices change to reflect changes in supply and demand for different commodities is known as a

A)socialist system.
B)communist system.
C)queuing system.
D)market system.

Question 11

Which of the following is NOT a device to reduce transaction costs?

A)Shopping centers
B)Auto dealers located close together
C)Government prohibitions on advertising
D)Banks that direct funds from savers to borrowers

Question 12

Specialists who try to lower transaction costs are

A)consumers.
B)producers.
C)bureaucrats.
D)middlemen.

Question 13

The signaling aspect of the market system refer to

A)legal requirements for contracts and exchanges.
B)the price of the good to the consumer and producer.
C)the voluntary character of the exchange.
D)transaction costs of carrying out exchanges.

Question 14

The price system features

A)exchanges made in currency only.
B)voluntary exchange that makes both the consumer and producer better off.
C)exchanges made only on a barter basis.
D)an exchange in which consumer is made better off and the producer is made worse off.

Question 15

In a market system,which component conveys information about what is relatively scarce and what is relatively abundant?

A)The number of producers
B)The number of consumers
C)Prices
D)The amount of government regulation

Question 16

The way we know what commodities are relatively scarce or abundant is through

A)transaction costs.
B)prices.
C)price ceilings.
D)price floors.

Question 17

Which of these would NOT be considered a middleman in a market?

A)A produce wholesaler
B)An apple farmer
C)A smartphone retailer
D)A fruit distributor

Question 18

Which of the following statements about markets is correct?
I.A market helps resources move to their highest-valued uses by means of prices.
II.A market encompasses the exchange arrangements of both buyers and sellers.

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 19

In a market system,what must take place for quantity demanded to continually be equated with quantity supplied?

A)Price controls must be applied by governments.
B)Relative prices must be able to adjust to market clearing levels.
C)Tastes and preferences of consumers must adjust to eliminate surpluses or shortages.
D)Businesses must engage in involuntary,unprofitable exchanges to eliminate surpluses or shortages.

Question 20

The price system has

A)prices fixed by the government.
B)prices fixed by the seller.
C)voluntary exchange.
D)prices fixed by the producer.

Question 21

The market system is also called the price system because

A)rising prices are the signal to producers to offer more of a particular good.
B)people pay money in markets.
C)everything has a price tag.
D)inflation is a significant problem.

Question 22

Buyers and sellers receive signals from markets

A)by listening to the TV news programs.
B)through the price system.
C)from the gossip columns in the newspapers.
D)from their friends and acquaintances.

Question 23

Transaction costs are

A)production costs.
B)taxes on production.
C)regulations on production.
D)costs associated with exchange.

Question 24

Intermediaries,known as middlemen,specialize in

A)reducing transaction costs.
B)negotiating high prices for sellers.
C)negotiating low prices for buyers.
D)encouraging consumers to buy goods on credit,rather than with cash.

Question 25

What are transaction costs? What are some ways in which society reduces transaction costs?

Question 26

All of the following reduce the transaction costs for consumers EXCEPT

A)eBay.
B)a shopping mall.
C)the Supreme Court decisions regarding the Second Amendment.
D)a grocery store.

Question 27

Markets tend to

A)exist primarily in towns or cities.
B)increase transaction costs.
C)reduce transaction costs.
D)make exchange more difficult.

Question 28

The rationing function of prices means that

A)government is responsible for setting the prices of basic foods.
B)all goods and services are produced by large firms.
C)businesses determine what goods consumers should purchase.
D)buyers and sellers synchronize their decisions through the price system.

Question 29

What are the terms of exchange and how are these terms related to the price?

Question 30

Assume that the initial demand and supply curves in the above figure are D_A and S_A,respectively.The initial equilibrium price and quantity are

A)P₁ and E.
B)P₃ and F.
C)P₁ and G.
D)P₂ and F.

Question 31

Your local grocery store reduces transaction costs to the consumer

A)by reducing the consumer's need to travel from food producer to food producer (or manufacturer to manufacturer)to purchase the food staples that the consumer desires.
B)by providing a system that directs funds from lenders to borrowers.
C)by providing a system of justice to enforce contracts.
D)All of the above are correct.

Question 32

Which of the following is a main characteristic of exchanges in the market system?

A)Decisions to trade are based on individuals' self interest.
B)Exchanges are highly regulated by the government.
C)Sellers hire economists to determine the market clearing price.
D)Exchanges are part of the legislative imperative.

Question 33

In a market system,how are the price signals established?

A)Consumer advocacy groups establish fair prices for items,and most firms follow these pricing guidelines because they don't want to anger their consumers.
B)Industry associations establish an acceptable price range for each commodity sold within the industry,and member firms are obligated to abide by association guidelines.
C)The forces underlying supply and demand interact to determine a market clearing price.
D)Federal legislation establishes maximum prices for most goods,and state governments regulate the prices of any remaining items.

Question 34

When a market clearing price is determined,

A)the exchange between buyers and sellers is voluntary.
B)the exchange between buyers and sellers is directed by outside factors such as the government.
C)the exchange between buyers and sellers benefits only the buyers.
D)the exchange between buyers and sellers benefits only the sellers.

Question 35

Another term for intermediaries who specialize in reducing transaction costs is

A)service providers.
B)consultants.
C)middlemen.
D)revenue agents.

Question 36

Which of the following is NOT a voluntary exchange?

A)Tom's car is stolen from in front of his house.
B)Marie buys groceries.
C)Scott pays $10,000 for tuition and fees this semester.
D)Emily buys a $1,000 plane ticket to fly from New York to Dallas on short notice.

Question 37

Refer to the above figure.Suppose the demand curve shifts from D_A to D_B,while the supply curve remains at S_A.Which of the following statements is FALSE?

A)There has been an increase in demand.
B)Supply has increased.
C)More consumers in the market might have caused the demand curve to shift.
D)The new equilibrium price is P₂,and the new equilibrium quantity is F.

Question 38

Market clearing prices in a market system act as

A)a signaling device.
B)a direct measure of resource costs.
C)a way for producers to advertise.
D)a legally determined rationing device.

Question 39

The publication Consumer Reports reduces transaction costs on many purchases by

A)providing coupons.
B)providing reliable information on product quality.
C)advertising sales at discount stores.
D)paying its employees low wages.

Question 40

Which of the following statements is NOT true about exchanges in the market system?

A)In voluntary exchange both parties are better off because of the exchange.
B)Exchanges occur only in situations of barter where the market price is irrelevant.
C)Prices indicate what is relatively abundant and what is relatively scarce.
D)Transaction costs in exchanges include the cost of enforcing a contract as well as the costs of information.

Question 41

As demand for MP3 music downloads increases,other things being equal,we can expect

A)a decrease in both the relative price and quantity of MP3 music downloads.
B)a decrease in the supply of MP3 music downloads.
C)more MP3 music downloads to be produced.
D)an excess number of MP3 music downloads in the market.

Question 42

A change in an equilibrium price can result from
I.A change in demand
II.A change in supply

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 43

With respect to the market clearing price and the equilibrium quantity of good X,increases in the demand for and the supply of good X will definitely

A)increase the market clearing price of good X but have an uncertain impact on the equilibrium quantity of X.
B)reduce the market clearing price and the equilibrium quantity of good X.
C)increase the market clearing price and the equilibrium quantity of good X.
D)increase the equilibrium quantity of good X but have an uncertain impact on the market clearing price of X.

Question 44

Suppose there is a simultaneous increase in the demand for wheat and increase in the supply of wheat.Which of the following will occur as a result of these simultaneous events?

A)Both the market clearing price and equilibrium quantity will rise.
B)The market clearing price will fall,but the equilibrium quantity will rise.
C)The market clearing price may rise,fall,or stay the same,but the equilibrium quantity will rise.
D)The market clearing price will fall,but the equilibrium quantity may rise,fall,or stay the same.

Question 45

Suppose Brad Pitts and Angelina Jolie wear matching platinum jewelry in their new movie.After the movie is released,suppose that consumers increase their demand for the jewelry and at the same time manufacturers increase the supply of the jewelry.As a result,

A)the equilibrium quantity will increase,and there is an indeterminate change in the equilibrium price.
B)the equilibrium quantity and price are both indeterminate.
C)the equilibrium quantity will decrease,and the equilibrium price will increase.
D)the equilibrium price and quantity will both decrease.

Question 46

If equilibrium price falls and the equilibrium quantity of the good purchased decreases,what has happened to either the supply curve or to the demand curve?

A)Supply increased.
B)Demand decreased.
C)Demand increased.
D)Supply decreased.

Question 47

If both the demand for and the supply of computers are increasing,which of the following statements is true?

A)The consumer should buy a computer now since the price will be higher in the future.
B)The consumer should wait and buy a computer later since the price will be lower in the future.
C)The price of a computer will be the same in the future as it is now.
D)It is impossible to know,given only this information,whether the prices of computers will go up or down in the future.

Question 48

If demand increases while supply decreases,then the equilibrium price

A)always increases.
B)always decreases.
C)may increase,decrease,or stay the same.
D)never changes.

Question 49

Suppose that consumer income decreases and that hamburger is an inferior good.Which of the following will occur in the market for hamburger?

A)Market clearing price will rise,and equilibrium quantity will rise.
B)Market clearing price will fall,and equilibrium quantity will fall.
C)Market clearing price will rise,and equilibrium quantity will fall.
D)Market clearing price will fall,and equilibrium quantity will rise.

Question 50

Which of the following will cause,other things being equal,a movement along the supply curve for LED televisions?

A)An improvement in the technology of producing LED televisions.
B)An increase in resource costs for producing LED televisions.
C)A reduction in the price of LED televisions.
D)An expectation that the price of LED televisions will be lower in the future.

Question 51

If other factors remain unchanged,technological progress in producing good X definitely will lead to

A)an increase in the market clearing price of good X and a decrease in the equilibrium quantity of good X.
B)an increase in both the market clearing price and the equilibrium quantity of good X.
C)a decrease in the market clearing price of good X and an increase in the equilibrium quantity of good X.
D)a decrease in both the market clearing price and the equilibrium quantity of good X.

Question 52

Suppose you are told that the equilibrium price of gasoline has increased,while the equilibrium quantity of gasoline has fallen.You are also told that either the demand changed or supply changed,but not both.Which of the following must have occurred?

A)Demand increased.
B)Demand decreased.
C)Supply increased.
D)Supply decreased.

Question 53

With respect to the market clearing price and the equilibrium quantity for good X,an increase in the demand for and a decrease in supply of the good definitely will

A)increase the market clearing price and the equilibrium quantity of good X.
B)decrease the market clearing price and the equilibrium quantity of good X.
C)increase the market clearing price of good X but lower the equilibrium quantity of X.
D)increase the market clearing price of good X but have an uncertain impact on the equilibrium quantity of X.

Question 54

Other things being equal,suppose that the demand for wheat in constant quality units increases.The increase in demand will cause

A)a surplus of wheat.
B)a higher equilibrium price and higher equilibrium quantity of wheat.
C)fall in the market clearing price of corn,a substitute for wheat.
D)a higher equilibrium quantity,but a lower equilibrium price of wheat.

Question 55

If demand increases while supply simultaneously decreases,then the equilibrium quantity

A)always increases.
B)always decreases.
C)can never change.
D)none of the above

Question 56

Suppose we observe the following two simultaneous events in the market for beef.First,there is a decrease in the demand for beef due to changes in consumer tastes.And second,there is a reduction in supply due to cattle farmers selling their land to real estate developers.We know with certainty that these two simultaneous events will cause which of the following?

A)no change in the equilibrium quantity and a reduction in the equilibrium price
B)an increase in the equilibrium quantity and in the equilibrium price
C)a decrease in the equilibrium quantity and an indeterminate change in the equilibrium price
D)a decrease in the equilibrium quantity and an increase in the equilibrium price

Question 57

Refer to the above figure.Suppose that the supply curve shifts from S_A to S_B while the demand curve remains at D_A.Which of the following is true?

A)Only quantity supplied has increased.
B)Only quantity demanded has decreased.
C)Supply has increased.
D)Supply has decreased.

Question 58

Suppose that demand for tablets increases,and simultaneously,the supply of tablets increases.Which of the following would you conclude definitely will occur in the market for tablets?

A)The market clearing price will rise.
B)The market clearing price will fall.
C)The equilibrium quantity will rise.
D)The equilibrium quantity will fall.

Question 59

Suppose that there is an improvement in technology in the market for iPhones.Which of the following is true?

A)Supply will increase and the market clearing price will fall.
B)Supply will increase and the market clearing price will rise.
C)Demand will increase and the market clearing price will rise.
D)Demand will increase and the market clearing price will fall.

Question 60

Refer to the above figure.Suppose that the supply curve shifts from S_A to S_B while the demand curve shifts from D_A to D_B.Which of the following is true about the results of the shifts in the supply and demand curves?

A)The equilibrium price increases while the equilibrium quantity remains unchanged.
B)Both the equilibrium price and equilibrium quantity increase.
C)The equilibrium price remains unchanged while the equilibrium quantity increases.
D)Both the equilibrium price and equilibrium quantity remain unchanged.

Question 61

In the labor market,adjustments to changes in supply and demand

A)usually occur instantly.
B)usually take time to occur.
C)do not apply,since the labor market does not respond to supply and demand forces.
D)do not apply,since wages in the labor market always go up.

Question 62

The price of a good always changes when

A)either a shortage or a surplus occurs.
B)quantity demanded and quantity supplied are constant.
C)there is an increase in demand and an increase in supply.
D)there is a decrease in demand and a decrease in supply.

Question 63

Holding supply constant,a reduction in demand leads to

A)lower prices and higher quantity supplied.
B)lower prices and lower quantity supplied.
C)higher prices and higher quantity supplied.
D)higher prices and lower quantity supplied.

Question 64

$$\begin{array} { c c c } \begin{array} { c } \text { Price } \\\text { Per Phone }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { Per Month }\end{array} & \begin{array} { r } \text { Quantity Supplied } \\\text { Per Month }\end{array} \\\hline \$ 400 & 2,000 & 12,000 \\375 & 3,000 & 11,000 \\350 & 4,000 & 10,000 \\325 & 5,000 & 9,000 \\300 & 6,000 & 8,000 \\275 & 7,000 & 7,000 \\250 & 8,000 & 6,000 \\225 & 9,000 & 5,000 \\200 & 10,000 & 4,000\end{array}$$

-Refer to the above table.Suppose there are technological advances in the production of smartphones.The new equilibrium price will be

A)$275.
B)$375.
C)less than $275.
D)between $275 and $375.

Question 65

An increase in the price of labor used to produce good Y will lead to

A)an increase in the market clearing price of good Y.
B)an increase in the supply of good Y.
C)a decrease in the demand for good Y.
D)an increase in the demand for good Y.

Question 66

The decrease in the price of gasoline to a national average of less than $3.20 during the summer of 2012 was most likely a result of

A)an increase in demand due to reduced summer driving.
B)an increase in supply resulting from higher refinery output.
C)an increase in demand due to increase in summer driving along with a decrease in supply resulting from reduced refinery output.
D)an increase in supply resulting from higher refinery output along with a decrease in demand in summer driving.

Question 67

If price increases and the quantity purchased increases,we know that

A)supply increased.
B)supply decreased.
C)demand increased.
D)demand decreased.

Question 68

An increase in supply,other things being equal,will cause which of the following to occur?

A)quantity supplied to decrease.
B)quantity demanded to increase.
C)a rightward shift in the demand curve as the price falls.
D)a leftward shift in the demand curves as the price increases.

Question 69

An increase in the equilibrium quantity of good X can be caused by

A)an increase the price of inputs utilized in producing good X.
B)an increase in the price of good X.
C)a technological improvement in the process of producing good X.
D)a reduction in the number of producers of good X.

Question 70

Holding demand constant,an increase in supply leads to

A)lower prices and higher quantity demanded.
B)lower prices and lower quantity demanded.
C)higher prices and higher quantity demanded.
D)higher prices and lower quantity demanded.

Question 71

Hospitals announce that there are not enough nurses available to keep them fully staffed.Economically speaking,what does this announcement mean?

A)The market wage for trained nurses is currently above the equilibrium wage.
B)There is currently a surplus of nurses in this market.
C)The market wage for nurses will eventually rise to the market clearing wage.
D)The market will adjust very rapidly to correct this imbalance because anyone can be a nurse without any training.

Question 72

People often complain about price gouging after a disaster such as a hurricane.Suppose the government successfully prevented price increases due to the disaster.We would expect

A)reconstruction to take longer because the quantity supplied of new materials would increase more slowly.
B)reconstruction to take less time because the demand for materials would increase faster.
C)reconstruction never to occur.
D)reconstruction to take less time because the government could rebuild more quickly when people are not in the way.

Question 73

Some oil refineries were damaged by Hurricane Ike of 2008,leading to

A)a decrease in supply of gasoline.
B)a decrease in quantity supplied of gasoline.
C)a decrease in demand for gasoline.
D)a decrease in quantity demanded for gasoline.

Question 74

The prices of certain goods,such as ice and gasoline,often increase after a natural disaster such as a hurricane.The economic explanation for this observation is that

A)people panic in disaster situations.
B)disasters bring out the worst in people.
C)the disaster temporarily reduces the supply of the goods and increases the demand for the goods.
D)the disaster temporarily reduces the supply of the goods and reduces the demand for the goods.

Question 75

In recent years,the price of smartphones has fallen,while the quantity exchanged of smartphones has risen.We can conclude that this is most likely a result of

A)a decrease in supply while demand remained constant.
B)an increase in demand while supply remained constant.
C)an increase in demand that exceeded an increase in supply.
D)an increase in supply that exceeded an increase in demand.

Question 76

Holding demand constant,a reduction in supply leads to

A)lower prices and higher quantity demanded.
B)lower prices and lower quantity demanded.
C)higher prices and higher quantity demanded.
D)higher prices and lower quantity demanded.

Question 77

Holding supply constant,an increase in demand leads to

A)lower prices and higher quantity supplied.
B)lower prices and lower quantity supplied.
C)higher prices and higher quantity supplied.
D)higher prices and lower quantity supplied.

Question 78

$$\begin{array} { c c c } \begin{array} { c } \text { Price } \\\text { Per Phone }\end{array} & \begin{array} { c } \text { Quantity Demanded } \\\text { Per Month }\end{array} & \begin{array} { r } \text { Quantity Supplied } \\\text { Per Month }\end{array} \\\hline \$ 400 & 2,000 & 12,000 \\375 & 3,000 & 11,000 \\350 & 4,000 & 10,000 \\325 & 5,000 & 9,000 \\300 & 6,000 & 8,000 \\275 & 7,000 & 7,000 \\250 & 8,000 & 6,000 \\225 & 9,000 & 5,000 \\200 & 10,000 & 4,000\end{array}$$

-Refer to the above table.Suppose the demand for smartphones rises because more people use the Internet with a smartphone.The new equilibrium price will be

A)$200.
B)$275.
C)more than $275.
D)impossible to be determined given the information.

Question 79

The price of labor in the agricultural industry has just increased.For agricultural products,this will lead to

A)an increase in price and a decrease in quantity.
B)an increase in price and an increase in quantity.
C)a decrease in price and a decrease in quantity.
D)a decrease in price and an increase in quantity.

Question 80

Suppose the price of cheese rises.In the market for pizza,one would expect that

A)the supply of pizza would increase,and the price would fall.
B)the demand for pizza would increase,and the price would increase.
C)the demand for pizza would decrease,and price would fall.
D)the supply of pizza would decrease,and price would rise.