Deck 2: Market Transactions: Demand and Supply Analysis

Question 1

A market is a mechanism through which buyers and sellers communicate to trade goods and services.

Answer 1

True

Question 2

According to the income effect, when the price of Coca Cola falls, its price falls relative to the price of Pepsi Cola. Consumers thus have an incentive to purchase more Coca Cola and less Pepsi Cola.

Answer 2

False

Question 3

According to the substitution effect, a decrease in the price of rice creates an increase in the purchasing power of consumers' money incomes. Therefore, consumers can purchase more rice with a given amount of money income.

Answer 3

False

Question 4

The demand curve for CDs will shift in response to a change in consumer tastes, prices of related goods, or consumer expectations.

Question 5

The demand curve for a normal good increases as income rises and falls as income decreases.

Question 6

For complementary goods, a reduction in the price of one good will decrease the demand for the other good.

Question 7

For inferior goods, a decrease in the price of one good will increase the demand for the other good.

Question 8

Supply is a schedule showing the amounts of a good or service that a firm or household is willing and able to sell at each possible price during a specified period.

Question 9

According to the law of demand, there is a positive and direct relationship between price and quantity demanded.

Question 10

According to the law of supply, there is a positive and direct relationship between price and quantity supplied.

Question 11

The tendency for the cost of producing additional output to decrease explains the law of supply.

Question 12

An increase in the price of corn would cause the supply curve of corn to shift to the right.

Question 13

A tax placed on the sale of gasoline imposes an additional cost on gas stations, and the supply curve shifts leftward.

Question 14

A subsidy placed on the production of wheat results in lower costs for wheat farmers and an increase in the supply.

Question 15

Market equilibrium occurs when the price of a product adjusts so that the quantity that consumers will purchase at that price is identical to the quantity that suppliers will sell.

Question 16

The amount by which quantity supplied exceeds quantity demanded is called a shortage.

Question 17

An increase in the price of baseballs will cause the demand curve for baseballs to shift to the left.

Question 18

When demand increases and the supply curve remains unchanged, both the equilibrium price and the equilibrium quantity decrease.

Question 19

When demand decreases and the supply curve remains unchanged, both the equilibrium price and the equilibrium quantity decrease.

Question 20

When supply increases, the equilibrium price rises and the equilibrium quantity falls.

Question 21

When supply decreases, the equilibrium price rises and the equilibrium quantity falls.

Question 22

A surplus of watermelon is most likely to cause a decrease in the price of watermelon.

Question 23

If the price of paper decreases, the supply curve of textbooks will shift to the right.

Question 24

The demand curve for Pepsi Cola tends to shift to the left as the price of Coca Cola increases.

Question 25

The demand curve slopes downward to the right because buyers are willing and able to purchase less at higher prices.

Question 26

A change in the number of suppliers will cause both the demand curve and the supply curve to shift.

Question 27

When a market is in equilibrium, there will be no tendency for the market price to change over a given period of time.

Question 28

From 1990's to 2007, the price of oil declined considerably, causing gasoline prices to rise.

Question 29

Economists expect that a decline in home building will cause lower lumber prices.

Question 30

Suppose a market is initially in equilibrium. If the demand for a good increases, and the price of that good stays the same, then we would expect a shortage to occur.

Question 31

Big price increases for hotel rooms in Indiana during certain weeekends in 2006 were caused by the large numbers of soccer fans looking for lodging.

Question 32

"Congestion pricing" means some drivers are charged tolls for being on particular roads at particular peak times.

Question 33

A ______ is a mechanism through which buyers and sellers communicate to trade goods and services.

A) production possibilities curve
B) supply curve
C) demand curve
D) market

Question 34

______ is a schedule that shows various amounts of a good or service a buyer is willing and able to purchase at each possible price during a particular period.

A) Production possibilities curve
B) Capacity utilization
C) Demand
D) Supply

Question 35

All of the following would cause the demand curve for Coca Cola to increase except

A) the price of Coca Cola decreases because of a price war among grocery stores
B) the price of Pepsi Cola, a substitute good, increases
C) there is an increase in the number of consumers in the market
D) a new government study concludes that Coca Cola helps prevent head colds

Question 36

According to the law of demand, price and quantity demanded are

A) inversely related
B) directly related
C) not related
D) the same

Question 37

If buyers expect that the price of steel will increase soon due to a limit on imports, the immediate effect will be a(n)

A) increase in the demand for steel as buyers switch from substitute goods
B) decrease in the quantity demanded of steel due to the change in supply
C) increase in the demand for steel due to the expectations of a higher price
D) decrease in the demand for steel due to worsening tastes and preferences

Question 38

All of the following are consistent with the law of supply except

A) the supply curve is positively sloped
B) as price increases, the quantity supplied increases
C) the extra cost of producing additional units of output rises as output rises
D) the extra cost of producing additional units of output falls as output rises

Question 39

If advances in technology make it possible for farmers to grow 25 percent more wheat per acre than they did in the past, the result would be an increase in the

A) supply of wheat because of declining costs of production
B) supply of wheat because of rising wheat prices
C) demand for wheat because of falling wheat prices.
D) quantity supplied of wheat because of greater willingness to sell wheat

Question 40

Successful advertising by Pizza Hut would

A) cause a downward movement along its existing demand curve
B) cause an upward movement along its existing demand curve
C) shift its demand curve backward to the left
D) shift its demand curve outward to the right

Question 41

Which of the following would result in the demand curve for beer shifting to the left among college students?

A) a decrease in the price of soft drinks, a substitute good
B) a decrease in the price of pizza, a complementary good
C) an increase in the number of students attending college
D) an increase in the price of beer

Question 42

If the demand for a good is negatively related to the price of another good, the two goods are

A) substitute goods
B) complementary goods
C) normal goods
D) inferior goods

Question 43

Assume that the supply of computers increased, while at the same time the demand for computers increased. The net effect of these two changes would be a(n)

A) increase in the equilibrium price and an indeterminate effect on the equilibrium quantity
B) decrease in the equilibrium price and an indeterminate effect on the equilibrium quantity
C) indeterminate effect on the equilibrium price and an increase in the equilibrium quantity
D) indeterminate effect on the equilibrium price and a decrease in the equilibrium quantity

Question 44

Assume that the demand for apples increased. The effect would be a(n)

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

Question 45

If the demand for a good is positively related to the price of another good, the two goods are

A) complementary goods
B) substitute goods
C) inferior goods
D) normal goods

Question 46

Assume that apples and oranges are substitute goods. A frost that destroys 50 percent of orange production in Florida would likely increase the price of oranges, therefore decreasing the

A) quantity demanded of oranges and increasing the demand curve for apples
B) demand curve for oranges and increasing the demand curve for apples
C) demand curve for oranges and increasing the supply curve of apples
D) demand curves of both oranges and apples

Question 47

If lima beans are an inferior good for Alice, a decrease in her income would

A) shift her demand curve for lima beans to the left
B) shift her demand curve for lima beans to the right
C) cause her to move upward along her demand curve for lima beans
D) cause her to move downward along her demand curve for lima beans

Question 48

Suppose that both demand and supply curves shift. If the equilibrium price decreases, but equilibrium quantity remains unchanged, this result can be explained by a(n)

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

Question 49

Which of the following will cause the demand curve for a normal good to increase?

A) an increase in the price of the good under consideration
B) a decrease in the price of the good under consideration
C) an increase in income
D) a decrease in income

Question 50

All else being equal, if the demand curve for hamburgers decreases as consumers' incomes decrease, hamburgers are a(n)

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

Question 51

When we draw a demand curve for automobiles, which of the following is allowed to vary along the demand curve?

A) tastes and preferences of consumers
B) future expectations of consumers
C) money income of consumers
D) the price of automobiles

Question 52

Suppose that the supply of music CDs increases. What happens to the equilibrium price and equilibrium quantity of music CDs?

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

Question 53

Which of the following causes a decrease in the quantity demanded of Canadian wheat?

A) an increase in the price of U.S. wheat
B) an increase in the price of Canadian wheat
C) an increase in the number of farmers growing Canadian wheat
D) a decrease in the cost of producing Canadian wheat

Question 54

When we draw a supply curve of pencils, which of the following is allowed to vary along the supply curve?

A) the prices of inputs used in pencil production
B) the price of pencils
C) the productivity of labor used in making pencils
D) the prices of pens and markers

Question 55

A rise in the price of corn gives farmers a greater incentive to

A) decrease the costs of producing corn
B) decrease the price of corn
C) devote more acreage to corn production
D) devote more acreage to wheat production

Question 56

In a competitive market, the price of a good is determined by

A) only the market power of buyers
B) only the market power of only sellers
C) the market power of the government
D) the interaction of buyers and sellers

Question 57

An increase in demand for iphones will

A) increase equilibrium quantity but have an indeterminate effect on the equilibrium price
B) decrease equilibrium price but have an indeterminate effect on the equilibrium quantity
C) decrease equilibrium quantity and decrease equilibrium price
D) increase equilibrium price and increase quilibrium quantity

Question 58

People like to put marshmallows in their hot chocolate. An increase in the price of hot chocolate mix will have what effect on the marshmallow market?

A) decrease the equilibrium price and quantity of marshmallows
B) increase the equilibrium price and quantity of marshmallows
C) decrease the equilibrium quantity and increase the equilibrium price of marshmallows
D) have no effect on the equilibrium quantity or price of marshmallows

Question 59

Tennis becomes less fashionable. What happens to the equilibrium price and quantity of tennis balls?

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

Question 60

A decrease in the supply of blankets, with the demand for blankets being unchanged, will

A) increase the equilibrium quantity and decrease the equilibrium price
B) increase the equilibrium quantity and increase the equilibrium price
C) decrease the equilibrium quantity and decrease the equilibrium price
D) decrease the equilibrium quantity and increase the equilibrium price

Question 61

Economists explain the law of ______ in terms of the income effect, the substitution effect, and the law of diminishing marginal utility.

A) demand
B) supply
C) rationality
D) price

Question 62

A technological advance reduces the cost of manufacturing digital cameras. As part of the transition to a new equilibrium in the digital camera market, there would occur an

A) upward movement along the demand curve for digital cameras
B) excess demand for digital cameras
C) increase in the supply curve of digital cameras
D) increase in the demand curve for digital cameras

Question 63

Figure 2.1 The Market for Calculators


-Refer to Figure 2.1. Initially, the market is in equilibrium at a price of $25 and quantity of 15 calculators. If consumer incomes decrease and calculators are normal goods, which of the following would best represent the new equilibrium price and quantity?

A) price = $40, quantity = 21 calculators
B) price = $65, quantity = 15 calculators
C) price = $15, quantity = 11 calculators
D) price = $50, quantity = 10 calculators

Question 64

Figure 2.1 The Market for Calculators


-Refer to Figure 2.1. Initially, the market is in equilibrium at a price of $25 and quantity of 15 calculators. If productivity decreases for workers who produce calculators, which of the following would best represent the new equilibrium price and quantity?

A) price = $40, quantity = 21 calculators
B) price = $15, quantity = 11 calculators
C) price = $50, quantity = 10 calculators
D) price = $40, quantity = 6 calculators

Question 65

Figure 2.1 The Market for Calculators


-Refer to Figure 2.1. Initially, the market is in equilibrium at a price of $25 and quantity of 15 calculators. If consumer tastes and preferences worsen for calculators, which of the following would best represent the new equilibrium price and quantity?

A) price = $65, quantity = 16 calculators
B) price = $40, quantity = 21 calculators
C) price = $40, quantity = 6 calculators
D) price = $15, quantity = 11 calculators

Question 66

Figure 2.1 The Market for Calculators


-Refer to Figure 2.1. Initially, the market is in equilibrium at a price of $25 and quantity of 15 calculators. If union negotiations result in higher wages but not higher worker productivity, which of the following would best represent the new equilibrium price and quantity?

A) price = $40, quantity = 6 calculators
B) price = $50, quantity = 10 calculators
C) price = $40, quantity = 21 calculators
D) price = $65, quantity = 16 calculators

Question 67

Figure 2.1 The Market for Calculators


-Refer to Table 2.1. The equilibrium price and equilibrium quantity of CD players are

A) $150 and 300 players
B) $200 and 800 players
C) $250 and 600 players
D) $300 and 650 players

Question 68

Table 2.1 Demand and Supply Data for CD Players

$$\begin{array} { r r r } \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & \begin{array} { c } \text { Quantity } \\\text { Supplied }\end{array} \\\$ 100 & 1,000 & 100 \\150 & 900 & 300 \\200 & 800 & 500 \\250 & 600 & 600 \\300 & 300 & 650\end{array}$$

-Refer to Table 2.1. If the price of CD players is $200,

A) there will be a surplus
B) there will be a shortage
C) the market is in equilibrium
D) the supply will increase

Question 69

Table 2.1 Demand and Supply Data for CD Players

$$\begin{array} { r r r } \text { Price } & \begin{array} { c } \text { Quantity } \\\text { Demanded }\end{array} & \begin{array} { c } \text { Quantity } \\\text { Supplied }\end{array} \\\$ 100 & 1,000 & 100 \\150 & 900 & 300 \\200 & 800 & 500 \\250 & 600 & 600 \\300 & 300 & 650\end{array}$$

-Refer to Table 2.1. Suppose that an increase in consumer incomes results in the demand for CD players increasing by 350 units at every price. With the supply of CD players remaining constant, the new equilibrium price will be

A) $100
B) $150
C) $200
D) $300

Question 70

According to the law of supply, as price decreases, the

A) quantity supplied of the good increases
B) quantity supplied of the good decreases
C) supply curve of the good shifts to the left
D) supply curve of the good shifts to the right

Question 71

In a competitive market, the price of pears serves to

A) signal consumers to buy more pears when there is a shortage
B) signal producers to supply more pears when there is a surplus
C) signal consumers to buy fewer pears when there is a surplus
D) ration pears among competing consumers

Question 72

A decrease in the price of a movie ticket creates an increase in consumers' purchasing power, so that they can afford to buy more movie tickets. This is called the

A) substitution effect
B) income effect
C) demand effect
D) diminishing marginal utility effect

Question 73

Which of the following is a demand shifter for coffee?

A) price of tea
B) price of coffee
C) number of coffee growers
D) technology of coffee production

Question 74

Which of the following is a supply shifter for cigarettes?

A) household incomes
B) price of cigars
C) number of smokers
D) cigarette taxes

Question 75

All of the following are demand shifters except

A) prices of related goods
B) consumer income
C) technology
D) consumer expectations

Question 76

All of the following are supply shifters except

A) number of suppliers
B) consumer tastes
C) producer expectations
D) resource prices

Question 77

When economists say that demand for dry cleaning services has decreased, they mean that

A) there was a downward movement along the demand curve
B) there was an upward movement along the demand curve
C) the demand curve has shifted to the right
D) the demand curve has shifted to the left

Question 78

Figure 2.2 The Market for Apples


-Refer to Figure 2.2. Equilibrium in the apple market occurs where price is ______ and quantity is ______.

A) $4; 1,200 bushels
B) $3; 800 bushels
C) $4; 1,600 bushels
D) $5; 1,200 bushels

Question 79

Figure 2.2 The Market for Apples


-Refer to Figure 2.2. When the price is $3, there is a(n)

A) equilibrium
B) quantity demanded of 800 bushels
C) surplus of 800 bushels
D) shortage of 800 bushels

Question 80

Which of the following goods are likely to be classified as complementary goods?

A) cheeseburgers and pickles
B) coffee and tea
C) milk and ginger ale
D) sugar and artifical sweetener