Deck 2: Demand, Supply, and Equilibrium Analysis

Question 1

A decline in the supply will cause a change in

A) the level of quantity demanded.
B) the demand.
C) A and B
D) None of the above is correct.

Answer 1

the level of quantity demanded.

Question 2

A decline in the demand will cause a change in

A) the level of quantity supplied.
B) the supply.
C) A and B
D) None of the above is correct.

Answer 2

the level of quantity supplied.

Question 3

Assume that corn and wheat are substitutes in production; that is, the same inputs can be used to produce either one of these two commodities. Also assume that the laws of supply and demand apply in both markets. If the demand for one of these commodities increases, what will likely happen in the other market?

A) The demand will increase.
B) The demand will decrease.
C) The supply will increase.
D) The supply will decrease.

Answer 3

The supply will decrease.

Question 4

If we notice that an increase in the price of product X causes reductions in the demand for product Y, then we can conclude that these two products are

A) complements in consumption.
B) substitutes in consumption.
C) complements in production.
D) substitutes in production.
E) None of the above is correct.

Question 5

If two goods are complements in consumption, then an increase in the price of one of these goods will cause

A) the demand for the other good to increase.
B) the supply of the other good to increase.
C) the demand for the other good to decrease.
D) the supply of the other good to decrease.
E) None of the above is correct.

Question 6

If both supply and demand increase at the same time, then

A) the price of the product will definitely increase.
B) the price of the product will definitely decline.
C) the market-clearing quantity of the product will definitely increase.
D) the market-clearing quantity of the product will definitely decrease.

Question 7

The management of firm A observed that every time there is an increase in the price charged by firm B, the level of sales of firm A declines. But when firm C increases its price, the level of sales of firm A increases. From this we can conclude that

A) firms A and B produce substitutes in consumption.
B) firms A and C produce substitutes in consumption.
C) firms A and B produce unrelated in consumption products.
D) firms A and C produce unrelated in consumption products.
E) None of the above is correct.

Question 8

The law of demand states that

A) as the price increases the demand increases (shifts outward).
B) as the price increases the quantity demanded decreases.
C) as the income level of the consumer increases the quantity demanded increases.
D) None of the above is correct.

Question 9

A good is normal if a rise in consumers' income causes

A) the quantity demanded to increase.
B) the demand to decrease.
C) the demand to increase.
D) None of the above is correct.

Question 10

Which of the following statements is incorrect?

A) In a recession, normal goods manufacturers are expected to have reductions in the demand.
B) In a recession, inferior goods manufacturers are not expected to have reductions in the demand.
C) All producers are going to be negatively affected in a recession.
D) None of the above is correct.

Question 11

In which scenario will both the equilibrium price and quantity increase at the same time?

A) When supply increases
B) When both supply and demand increase
C) When demand increases
D) When both supply and demand decrease
E) None of the above is correct.

Question 12

If supply increases while demand decreases

A) the equilibrium price will definitely increase.
B) the equilibrium quantity will definitely increase.
C) the equilibrium price will definitely decrease.
D) the equilibrium quantity will definitely decrease.

Question 13

If both demand and supply decrease at the same time, then

A) the equilibrium price will increase.
B) the equilibrium price will decrease.
C) the equilibrium quantity will increase.
D) the equilibrium quantity will decrease.

Question 14

If we assume that the current equilibrium wage for low-skilled labor is $8 per hour and the minimum wage is increased from $5.75 to $7.25 per hour, then

A) unemployment among low-skilled workers will increase.
B) unemployment among low-skilled workers will remain unaffected.
C) unemployment among low-skilled workers will decrease.

Question 15

What would your answer to the previous question be if the current market-clearing wage equaled $7.00?

A) The unemployment would increase.
B) The unemployment would remain the same.
C) The unemployment would decrease.
D) None of the above is correct.

Question 16

When rent controls are imposed below the current market price they can do all except

A) increase the quantity of rental housing demanded.
B) reduce the quality of rental housing.
C) reduce the level of supply of rental housing.
D) create excess supply of rental housing.

Question 17

When rent control is imposed above the current market price it will

A) increase the quantity of rental housing demanded.
B) reduce the quality of rental housing.
C) create a shortage of rental housing.
D) create no impact on the market.

Question 18

Assume that the price of X decreases and as a result of that the demand for Y increases while the demand for Z decreases. From this we can conclude that

A) goods X and Y are substitutes in consumption.
B) goods X and Z are substitutes in consumption.
C) goods Y and Z are complements in consumption.
D) None of the above is correct.

Question 19

Which of the following best describes a normal good?

A) An increase in the price of the product leads to an increase in the level of quantity demanded.
B) A reduction in the price of the product leads to a decrease in the level of quantity demanded.
C) An increase in the consumer's income causes a decrease in the demand.
D) A reduction in the consumer's income causes an increase in the demand.
E) None of the above is correct.

Question 20

If we assume the following scenario: as the average income of the consumer increases the demand for "fast" food decreases, then we can assume that "fast" food is

A) a normal good.
B) an inferior good.
C) None of the above is correct.

Question 21

Which of the following will not be a consequence of an import tariff?

A) An increase in the price of the product in the domestic market
B) Reduced competitive pressure by foreign firms on the domestic producers
C) Increased level of supply in the domestic market
D) None of the above is correct.

Question 22

What is the effect of an increase in the price of fuel on the transportation services market where fuel is an input?

A) The demand will increase.
B) The demand will decrease.
C) The supply will increase.
D) The supply will decrease.

Question 23

eBay shoppers are frequently asked by eBay sellers to pay the cost of shipping the purchased item. Who really pays the shipping cost in eBay transactions?

A) The buyer
B) The seller
C) Both parties are likely to share the cost.
D) eBay corporation

Question 24

Excess supply causes the price to

A) increase.
B) fall.
C) remain unchanged.

Question 25

Excess demand causes the price to

A) increase.
B) fall.
C) remain unchanged.

Question 26

Technological progress helps increase the productivity of labor, defined as the number of units of output produced per hour of labor. A rise in the productivity of labor in the production process, ceteris paribus, will cause

A) the demand for the output to increase.
B) the demand for the output to decrease.
C) the supply of the output to increase.
D) the supply of the output to decrease.
E) None of the above is correct.

Question 27

If we observe a rise in the equilibrium price and a decline in the equilibrium quantity, then which of the following must have happened?

A) Both demand and the supply must have increased.
B) Both demand and the supply must have decreased.
C) The demand increased while the supply remained unchanged.
D) The supply increased while the demand remained the same.
E) None of the above is correct.

Question 28

Which of the following developments in the housing market will help increase housing prices?

A) A rise in the supply
B) A decline in the supply
C) A decline in the demand
D) None of the above is correct

Question 29

Under which scenario will sellers of a product find it easier to pass cost increases onto consumers?

A) When the demand curve is vertical
B) When the demand curve is downward sloping
C) When the demand curve is horizontal
D) None of the above is correct, as the shape of the demand plays no role in this process.

Question 30

In 2011, the total amount of farm aid provided by government was the largest in

A) The United States
B) Japan
C) The European Union
D) It was the same in the United States, Japan, and the European Union

Question 31

Which of the following is not a characteristic of a nonclearing market?

A) Economic agents react to price signals only
B) Economic agents react to price and quantity signals
C) A disequilibrium in one market can create spillover effects in a related market
D) A presence of excess demand or excess supply

Question 32

Presence of unemployment implies all except

A) The labor market clears
B) There exists an excess supply of labor
C) The labor market is an example of a non-clearing market
D) The quantity of labor supplied exceeds the quantity of labor demanded

Question 33

The market demand curve shows

A) the effect on market supply of a change in the demand for a good or service.
B) the quantity of a good that consumers would like to purchase at different prices.
C) the marginal cost of producing and selling different quantities of a good.
D) the effect of advertising expenditures on the market price of a good.

Question 34

At a price of $4.95, a pulp fiction novel is expected to sell 9,000 copies. If the novel is offered for sale at a price of $3.95, then the publisher can expect to sell

A) fewer than 9,000 copies.
B) 9,000 copies.
C) more than 9,000 copies.
D) It is impossible to predict the effect of a lower price on sales.

Question 35

During a recession, economies experience increased unemployment and a reduced level of activity. How would a recession be likely to affect the market demand for new cars?

A) Demand will shift to the right.
B) Demand will shift to the left.
C) Demand will not shift, but the quantity of cars sold per month will decrease.
D) Demand will not shift, but the quantity of cars sold per month will increase.

Question 36

The market supply curve shows

A) the effect on market demand of a change in the supply of a good or service.
B) the quantity of a good that firms would offer for sale at different prices.
C) the quantity of a good that consumers would be willing to buy at different prices.
D) All of the above are correct.

Question 37

At a price of $299.99, the manufacturer of a portable air conditioner is willing to produce 19,000 units per quarter. At a price of $349.99, it is likely that the manufacturer will be willing to produce

A) more than 19,000 units per quarter.
B) 19,000 units per quarter.
C) fewer than 19,000 units per quarter.
D) It is impossible to predict the effect of a higher price on the number of units of a product that a firm will be willing to produce.

Question 38

Unionized workers may be able to negotiate with management for higher wages during periods of economic prosperity. Suppose that workers at automobile assembly plants successfully negotiate a significant increase in their wage package. How would the new wage contract be likely to affect the market supply of new cars?

A) Supply will shift to the right.
B) Supply will shift to the left.
C) Supply will not shift, but the quantity of cars produced per month will decrease.
D) Supply will not shift, but the quantity of cars produced per month will increase.

Question 39

If automobile manufacturers are producing cars faster than people want to buy them,

A) there is an excess supply and price can be expected to decrease.
B) there is an excess supply and price can be expected to increase.
C) there is an excess demand and price can be expected to decrease.
D) there is an excess demand and price can be expected to increase.

Question 40

If a computer hardware company introduces a new ultra-thin laptop and finds that orders far exceed the number of units that are being produced,

A) there is an excess supply and price can be expected to decrease.
B) there is an excess supply and price can be expected to increase.
C) there is an excess demand and price can be expected to decrease.
D) there is an excess demand and price can be expected to increase.

Question 41

Market equilibrium refers to a situation in which market price

A) is high enough to allow firms to earn a fair profit.
B) is low enough for consumers to buy all that they want.
C) is at a level where there is neither a shortage nor a surplus.
D) is just above the intersection of the market supply and demand curves.

Question 42

If the price of a good increases while the quantity of the good exchanged on markets increases, then the most likely explanation is that there has been

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

Question 43

If the price of a good decreases while the quantity of the good exchanged on markets increases, then the most likely explanation is that there has been

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

Question 44

If the price of a good increases while the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been

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

Question 45

If the price of a good decreases and the quantity of the good exchanged on markets decreases, then the most likely explanation is that there has been

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

Question 46

An increase in the demand for a good will cause

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

Question 47

An increase in the supply of a good will cause

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

Question 48

Which of the following statements about the market is correct?

A) Market may or may not be a physical location.
B) There is a market for each good and service.
C) Some markets are local, some are regional, others are national.
D) All of the above are correct.

Question 49

Which of the following is a feature of perfectly competitive market?

A) There are many buyers and sellers.
B) Not all goods are homogeneous.
C) Resources are static.
D) Knowledge of the market is imperfect.

Question 50

Assuming that price is above the equilibrium price, which of the following is correct?

A) There will be upward pressure until the price reaches the equilibrium price.
B) There will be downward pressure until the price reaches the equilibrium price.
C) There might be upward or downward pressure on price.
D) There will be no pressure on price.

Question 51

Assuming that price is below the equilibrium price, which of the following is correct?

A) There will be upward pressure until the price reaches the equilibrium price.
B) There will be downward pressure until the price reaches the equilibrium price.
C) There might be upward or downward pressure on price.
D) There will be no pressure on price.

Question 52

If there is a shortage in a rental market, what is expected?

A) Rental prices to be decreasing until shortage is eliminated.
B) Rental prices to be increasing until shortage is eliminated.
C) Rental prices to either be increasing or decreasing.
D) Rental prices to stay the same.

Question 53

If there is a surplus in a housing market, what can be expected?

A) Housing prices to be decreasing until shortage is eliminated.
B) Housing prices to be increasing until shortage is eliminated.
C) Housing prices to either be increasing or decreasing.
D) Housing prices to stay the same.

Question 54

If the price in the U.S. is higher than the price of identical good abroad before trade, after opening trade which of the following should occur?

A) U.S. should export the good.
B) U.S. should import the good.
C) U.S. should both import and export the good.
D) U.S. should not trade.

Question 55

Which of the following is correct about imports of goods and services from abroad?

A) Imports of goods and services increases the price for domestic consumers.
B) Imports of goods and services does not change the price for domestic consumers.
C) Imports of goods and services decreases the price for domestic consumers.
D) It is impossible to tell without additional information.

Question 56

What happens if the price ceiling is set above equilibrium price?

A) It keeps the prices lower than they would be otherwise.
B) It keeps the prices higher than they would be otherwise.
C) Price increases despite price ceiling.
D) Nothing happens, effective price ceiling needs to be below equilibrium price.

Question 57

Import tariffs on a good or a service do all of the following, except

A) increase the equilibrium price in the domestic market.
B) increase the equilibrium quantity sold in the domestic market.
C) helps the domestic producers.
D) raises government revenue.

Question 58

How is a Dutch auction conducted?

A) Starts with a low price. Participants bid up the price until only one is left.
B) Starts with a high price. Price is reduced until one participant accepts it.
C) Participants submit their prices in envelopes. Highest bidder wins.
D) There is no such thing as a Dutch Auction.

Question 59

How is a Danish auction conducted?

A) Starts with a low price. Participants bid up the price until only one is left.
B) Starts with a high price. Price is reduced until one participant accepts it.
C) Participants submit their prices in envelopes. Highest bidder wins.
D) There is no such thing as a Danish auction.

Question 60

An economic recession with a decline in household incomes will negatively impact all retail businesses.

Question 61

In a perfectly competitive market no individual producer or consumer can change the market price.

Question 62

Assume that consumers who shop for single-family homes do not consider condos. Also assume that consumers who wish to purchase condos do not look at single-family homes. Based on these assumptions we can argue that these are two different markets.

Question 63

Consumer financing has become a common factor in the retail auto market; thus, any increases in the interest rate on car loans would cause the demand for cars to decline.

Question 64

A downward-sloped demand curve is consistent with the law of demand.

Question 65

Commodities play an integral role in many production processes. If the global economy experiences a rapid expansion, then, all else held constant, commodity prices should be expected to increase.

Question 66

When the supply curve shifts up (supply declines), the equilibrium quantity falls, which means the demand declines.

Question 67

If consumers in country A purchase many imported-from-country-B goods, and these imported goods are perceived by country A consumers as normal goods, then a recession accompanied by a decline in consumer incomes in country A can spread into country B.

Question 68

If consumers in country A purchase many imported-from-country-B goods, and these imported goods are perceived by country A consumers as inferior goods, then a recession (which in this case is defined as a decline in consumer incomes) in country A can spread into country B.

Question 69

If public transportation is a substitute to driving and downtown parking is a complementary service to driving, then a rise in the price of downtown parking will cause the supply of public transportation to increase.

Question 70

International trade in the absence of restrictions and transportation costs leads to price equalization for internationally traded goods, meaning that the domestic price equalizes with the price abroad.

Question 71

When costs of production of a product increase, the equilibrium level of output of that product decreases, assuming that the demand is consistent with the law of demand.

Question 72

Recently eBay started to introduce controls in some of its categories on what the sellers can charge in terms of shipping. This policy might be necessary to protect the buyers because the economic incidence of shipping charges is entirely on the buyer.

Question 73

If we assume that the demand for oil in oil importing countries is nearly vertical, then the economic incidence of oil export tariffs imposed by oil exporting countries mainly falls onto oil consumers in oil importing countries.

Question 74

A minimum wage set below the market equilibrium wage will result in higher unemployment.

Question 75

An excess supply occurs at prices below the equilibrium price.

Question 76

If we define unemployment as a surplus of labor, then a minimum wage set above the market-clearing wage will increase the level of unemployment.

Question 77

A positive excess demand can only be observed at prices above the market equilibrium price.

Question 78

The cost of protection of domestic jobs from foreign competition is usually paid by domestic consumers in the form of higher prices on imported goods.

Question 79

Non-clearing markets often have spillover effects into related markets. For example, when a concert promoter deliberately sets the ticket price below the market equilibrium price, this may result in greater sales of the performer's recordings.

Question 80

Selling a product below its equilibrium price may be a profit maximizing strategy for a firm if it leads to a desired spillover effect in another market where the firm operates.