Question 1

Which of the following would cause both the equilibrium price and equilibrium quantity of barley (assume that barley is an inferior good) to increase?

Accepted Answer

A)  an increase in consumer income 
B)  a drought that sharply reduces barley output 
C)  a decrease in consumer income 
D)  unusually good weather that results in a bumper crop of barley

Question 2

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

Accepted Answer

A)  The demand for digital music players is greater than the supply of digital music players. 
B)  Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price. 
C)  The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease. 
D)  The shortage will cause a decrease in the equilibrium price of digital music players.

Question 3

If the price of grapefruit rises, the substitution effect due to the price change will cause

Accepted Answer

A)  a decrease in the demand for grapefruit. 
B)  a decrease in the demand for oranges, a substitute for grapefruit. 
C)  a decrease in the quantity of grapefruit demanded. 
D)  a decrease in the quantity of grapefruit supplied.

Question 4

Assume that there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?

Accepted Answer

A)  The supply of hybrid automobiles is greater than the demand for hybrid automobiles. 
B)  Some consumers will be unable to obtain hybrid automobiles at the market price and will have an incentive to offer to buy the product at a higher price. 
C)  The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease. 
D)  The surplus will cause an increase in the equilibrium price of hybrid automobiles.

Question 5

What is the difference between an "increase in supply" and an "increase in quantity supplied"?

Accepted Answer

A)  There is no difference between the two terms; they both refer to a shift of the supply curve. 
B)  There is no difference between the two terms; they both refer to a movement along a given supply curve. 
C)  An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" means at any given price supply has increased. 
D)  An "increase in supply" means the supply curve has shifted to the right while an "increase in quantity supplied" refers to a movement along a given supply curve in response to an increase in price.

Question 6

Draw a supply and demand graph showing an equilibrium price of $50 and an equilibrium quantity of 200 units. Explain what would happen if the selling price was $75, and illustrate this on the graph. Explain what would happen if the selling price was $25, and illustrate this on the graph. Be sure to label each axis and curve on the graph.

Accepted Answer

The answer of Draw a supply and demand graph showing...

Question 7

Hurricane Katrina damaged a large portion of oil refining and pipeline capacity in the Gulf coast states. In the market for gasoline

Accepted Answer

A)  the supply curve shifted to the left resulting in an increase in the equilibrium price. 
B)  the supply curve shifted to the right resulting in an increase in the equilibrium price. 
C)  the demand curve shifted to the left resulting in a decrease in the equilibrium price. 
D)  the demand curve shifted to the right resulting in an increase in the equilibrium price.

Question 8

If the demand for a product decreases and the supply of the same product decreases, the equilibrium price will decrease.

Accepted Answer

A) True 
 B)False

Question 9

The growing popularity of energy conservation has enticed large home improvement stores like Home Depot and Lowes to offer tankless water heaters. How does the fact that home improvement stores now offer these products affect the tankless water heater market?

Accepted Answer

A)  The demand curve for tankless water heaters shifts to the right. 
B)  The demand curve for tankless water heaters shifts to the left. 
C)  The supply curve for tankless water heaters shifts to the right. 
D)  The supply curve for tankless water heaters shifts to the left.

Question 10

Assume that the demand curve for MP3 players shifts to the right and the supply curve for MP3 players shift to the left, but the supply curve shifts less than the demand curve. As a result

Accepted Answer

A)  both the equilibrium price and quantity of MP3 players will decrease. 
B)  both the equilibrium price and quantity of MP3 players will increase. 
C)  the equilibrium price of MP3 players may increase or decrease; the equilibrium quantity will decrease. 
D)  the equilibrium price of MP3 players will increase; the equilibrium quantity will decrease.

Question 11

Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week, the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?

Accepted Answer

A)  There is an increase in the supply of pool maintenance services. 
B)  There is a decrease in the demand for pool maintenance services. 
C)  There is a decrease in the quantity of pool maintenance services supplied. 
D)  There is a decrease in the supply of pool maintenance services.

Question 12

If the demand for letters written by Abraham Lincoln is higher than the demand for letters written by John Wilkes Booth, what would have to be true for the market equilibrium prices for these letters to be equal?

Accepted Answer

A)  The supply of Lincoln letters would have to be less than the supply of Booth letters. 
B)  The supply of Booth letters would have to be less than the supply of Lincoln letters. 
C)  The supply of Lincoln letters and the supply of Booth letters would have to be equal. 
D)  If the demand for Lincoln letters is greater than the demand for Booth letters, the market equilibrium price for Lincoln letters will always be greater than the market equilibrium price for Booth letters.

Question 13

Buyers scrambled to secure stocks of Australian wool following a forecast of an 11 percent decline in wool production. What happens in the Australian wool market as a result of this announcement?

Accepted Answer

A)  The demand curve for Australian wool shifts to the left in anticipation of higher prices in the future. 
B)  The demand curve for Australian wool shifts to the right in anticipation of higher prices in the future. 
C)  The quantity of Australian wool demanded increases in anticipation of higher prices in the future. 
D)  The quantity of Australian wool demanded decreases in anticipation of lower quantities in the future.

Question 14

At a product's equilibrium price

Accepted Answer

A)  the product's demand curve is the same as the product's supply curve. 
B)  the quantity of the product demanded is greater than the quantity of the product supplied. 
C)  the quantity of the product demanded is less than the quantity of the product supplied. 
D)  the product's demand curve crosses the product's supply curve.

Question 15

Factory incentives on cell phones have encouraged consumers to upgrade their phones. How does this affect the market for bluetooth headsets?

Accepted Answer

A)  The quantity of bluetooth headsets demanded increases. 
B)  The quantity of bluetooth headsets demanded decreases. 
C)  The demand for bluetooth headsets increases. 
D)  The demand for bluetooth headsets decreases.

Question 16

Which of the following will shift the demand curve for a good?

Accepted Answer

A)  a change in the technology used to produce the good 
B)  an increase in the price of the good 
C)  a decrease in the price of a complementary good 
D)  a decrease in the price of the good

Question 17

Studies have shown that drinking one glass of red wine per day may help prevent heart disease. Assume this is true, and a fungal disease destroys a large portion of the grape harvest of California vineyards. In the market for red wine, these two developments would

Accepted Answer

A)  increase demand and increase supply, resulting in an increase in the equilibrium quantity and a decrease in the equilibrium price of red wine. 
B)  increase demand and decrease supply resulting in a decrease in both the equilibrium quantity and the equilibrium price of red wine. 
C)  increase demand and decrease supply, resulting in an increase in the equilibrium price and an uncertain effect on the equilibrium quantity of red wine. 
D)  increase demand and decrease supply, resulting in an increase in both the equilibrium price and the equilibrium quantity of red wine.

Question 18

Which of the following describes a characteristic of a perfectly competitive market?

Accepted Answer

A)  There are many buyers but few sellers. 
B)  There are many sellers but few buyers. 
C)  There are many buyers and sellers. 
D)  Equilibrium is achieved when demand for the product sold in the market equals the supply.

Question 19

The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power as a result of the price change.

Accepted Answer