Deck 4: Coordinating Smart Choices: Demand and Supply

Question 1

For exchange to be voluntary, price must be less than the

A) opportunity cost of the buyer.
B) marginal benefit of the buyer.
C) minimum amount the seller is willing to accept.
D) opportunity cost of the seller.
E) marginal benefit of the seller.

Answer 1

marginal benefit of the buyer.

Question 2

A market is defined as a place where trades occur.

Answer 2

False

Question 3

All markets involve negotiations between buyers and sellers that result in exchange.

Answer 3

True

Question 4

Supporters of "free markets" believe that

A) the government has no role to play in the economy.
B) competition between buyers is all that is needed for voluntary exchange.
C) voluntary exchange is a zero-sum game.
D) the government has an important role in enforcing property rights.
E) competition between sellers is all that is needed for voluntary exchange.

Question 5

Property rights

A) provide incentives for selling.
B) are part of the rules of the game for markets to work.
C) are enforced by government.
D) are a prerequisite for anything to be produced.
E) are all of the above.

Question 6

A market is defined as a

A) physical or virtual place.
B) thing.
C) process.
D) place where sellers take advantage of buyers.
E) place where buyers take advantage of sellers.

Question 7

Apu Nahasapeemapetilon opens an outdoor iced cappuccino stand in order to sell coffee to neighbours. Apu's product is unique enough that he has some choice about what price to charge. Based the information above, which statement is true?

A) If customers are allowed to steal the iced cappuccinos without paying, this would still be a market.
B) The price should cover what it costs to make the iced cappuccinos, but not the cost of Apu's time.
C) If Apu sells no iced cappuccinos, his price must be less than the marginal benefit of any of his customers.
D) If Apu sells no iced cappuccinos, his price must be greater than the marginal benefit of any of his customers.
E) If Apu moved his stand indoors, it would no longer be a market.

Question 8

Property rights

A) are easy to implement in large countries.
B) were recently eliminated in Australia.
C) are only important in the city.
D) are legally enforceable guarantees of ownership.
E) are not important in the market.

Question 9

Which statement about markets is false?

A) sellers compete with other sellers
B) buyers cooperate with sellers
C) buyers compete with other buyers
D) sellers cooperate with other sellers
E) sellers cooperate with buyers

Question 10

Fixed prices in markets eliminate competition between buyers.

Question 11

For exchange to be voluntary, price must be more than the

A) marginal benefit of the seller.
B) opportunity cost of the buyer.
C) opportunity cost of the seller.
D) maximum amount the buyer is willing to pay.
E) marginal benefit of the buyer.

Question 12

Which statement about markets is true?

A) sellers compete with other sellers
B) sellers cooperate with buyers
C) buyers compete with other buyers
D) buyers cooperate with sellers
E) all of the above statements are true

Question 13

Which statement about markets is true?

A) buyers compete with sellers
B) buyers cooperate with other buyers
C) buyers compete with other buyers
D) sellers cooperate with other sellers
E) sellers compete with buyers

Question 14

A market is defined as

A) a process.
B) interactions between buyers and sellers.
C) a process of competing bids and offers.
D) negotiations between buyers and sellers resulting in exchange.
E) all of the above.

Question 15

Which statement about markets is false?

A) buyers compete with sellers
B) buyers cooperate with sellers
C) buyers compete with other buyers
D) sellers compete with other sellers
E) sellers cooperate with buyers

Question 16

Which statement about markets is true?

A) buyers compete with sellers
B) sellers cooperate with buyers
C) buyers cooperate with other buyers
D) sellers cooperate with other sellers
E) sellers compete with buyers

Question 17

If all sellers in a market charge the same price, that eliminates competition between sellers.

Question 18

In Canada, we define property to include everything except

A) money.
B) land.
C) buildings.
D) music.
E) people.

Question 19

A market is a process - the interactions between buyers and sellers.

Question 20

Voluntary exchange

A) requires disinterested consumers.
B) can make some people worse off.
C) is a zero-sum game.
D) is mutually beneficial.
E) is now illegal in Europe.

Question 21

In a voluntary exchange, the price must be more than the opportunity cost of the seller.

Question 22

Which is not a quantity adjustment?

A) Ford asks its assembly plant workers to work overtime.
B) Leon's Furniture eliminates the HST on furniture sales.
C) PBS orders extra DVD copies of Downton Abbey.
D) Ontario Hydro lays off half of the workers in its nuclear plants.
E) Apple builds up inventories of iPads before selling a new model.

Question 23

When the price is above the market-clearing price,

A) the market-clearing price rises.
B) rising inventories cause the price to fall.
C) falling inventories cause the price to fall.
D) falling inventories cause the price to rise.
E) rising inventories cause the price to rise.

Question 24

Sellers compete against buyers in the marketplace.

Question 25

The miracle of markets occurs

A) because government enforces property rights.
B) because prices serve as signals to consumers and businesses for smart choices.
C) when consumers and businesses make self-interested smart choices based on prices.
D) as a byproduct of individual decisions made by complete strangers.
E) because all of the above are true.

Question 26

When concert tickets go on sale, potential buyers compete on a first-come, first-get basis.

Question 27

Property rights are a prerequisite for anything to be produced.

Question 28

Voluntary exchange is competitive at heart.

Question 29

The miracle of markets is that

A) markets coordinate smart choices of consumers and businesses without any role for government.
B) businesses are free to set any prices they choose.
C) consumers and businesses learn about each others' personal wants and production capabilities.
D) the products and services we want are produced as a byproduct of individual decisions made by complete strangers.
E) scarcity is eliminated by the interaction of demand and supply in markets with appropriate property rights.

Question 30

In a voluntary exchange, the price must at least be equal to the maximum amount the buyer is willing to pay.

Question 31

In a voluntary exchange, the price must be more than the marginal benefit of the buyer.

Question 32

Copyrights and patents are legally enforceable guarantees to the owners of physical property.

Question 33

For exchange to be voluntary the price must be greater than the marginal opportunity cost of the seller and less than the marginal benefit of the buyer.

Question 34

In a voluntary exchange, the price must be more than the opportunity cost of the buyer.

Question 35

Voluntary exchange is a zero-sum game.

Question 36

Property rights are legally enforceable guarantees of ownership.

Question 37

For exchange to be voluntary the price must be greater than both the marginal opportunity cost of the seller and the marginal benefit of the buyer.

Question 38

In a market economy,

A) prices are set by businesses alone.
B) businesses adjust prices more often than quantities.
C) prices are determined by the interaction of demand and supply.
D) consumers must buy at the prices businesses set.
E) the government determines prices.

Question 39

In a voluntary exchange, the price must at least be equal to the minimum amount the seller is willing to accept.

Question 40

Without property rights there would be no incentive to produce and sell products.

Question 41

Falling prices for a service

A) create incentives for consumers to find cheaper substitutes.
B) eliminate shortages.
C) decrease quantity supplied of the service.
D) create incentives for businesses to produce more.
E) do all of the above.

Question 42

A surplus is the amount by which quantity

A) demanded exceeds quantity supplied.
B) supplied exceeds quantity demanded.
C) supplied increases when the price falls.
D) demanded exceeds the equilibrium quantity.
E) supplied exceeds the equilibrium quantity.

Question 43

Rising prices for a service

A) create incentives for consumers to buy more, switching from more expensive substitutes.
B) eliminate surpluses.
C) create incentives for businesses to produce less.
D) decrease quantity demanded of the service.
E) do all of the above.

Question 44

Rising prices for a product

A) create incentives for consumers to find cheaper substitutes.
B) eliminate shortages.
C) create incentives for businesses to produce more.
D) decrease quantity demanded of the product.
E) do all of the above.

Question 45

Falling prices for a service

A) create incentives for consumers to find cheaper substitutes.
B) eliminate shortages.
C) decrease quantity demanded of the service.
D) decrease supply of the service.
E) do none of the above.

Question 46

A shortage is the amount by which quantity

A) demanded exceeds quantity supplied.
B) supplied exceeds quantity demanded.
C) demanded increases when the price rises.
D) demanded exceeds the equilibrium quantity.
E) supplied exceeds the equilibrium quantity.

Question 47

How do price adjustments eliminate a surplus?

A) As price rises, quantity demanded decreases and quantity supplied increases.
B) As price rises, quantity demanded increases and quantity supplied decreases.
C) As price falls, quantity demanded decreases and quantity supplied increases.
D) As price falls, quantity demanded increases and quantity supplied decreases.
E) None of the above are true.

Question 48

When the price is below the market-clearing price,

A) the market-clearing price falls.
B) rising inventories cause the price to fall.
C) falling inventories cause the price to fall.
D) falling inventories cause the price to rise.
E) rising inventories cause the price to rise.

Question 49

If workers demand a wage above the market-clearing wage, we observe

A) unemployment.
B) an excess supply of jobs.
C) a shortage of workers.
D) unions.
E) an excess demand for workers.

Question 50

Figure 4.2.1
Market Demand and Supply for Pet Rocks

Look at Figure 4.2.1. There is a shortage if the price is

A) $7.
B) $4.
C) $5.
D) below $4.
E) above $4.

Question 51

Rising prices for a service

A) create incentives for consumers to buy more, switching from more expensive substitutes.
B) eliminate surpluses.
C) create incentives for businesses to produce less.
D) increase supply of the service.
E) do none of the above.

Question 52

Figure 4.2.1
Market Demand and Supply for Pet Rocks

Look at Figure 4.2.1. At a price of $3,

A) the market is in equilibrium.
B) there is a surplus of 180.
C) there is a shortage of 180.
D) there is pressure for the price to fall.
E) inventories increase by 180.

Question 53

Figure 4.2.3.
Look at Figure 4.2.3. At a price of $12, how many units are sold in the market?

A) 20 units
B) 30 units
C) 40 units
D) zero units
E) none of the above

Question 54

Figure 4.2.1
Market Demand and Supply for Pet Rocks

Look at Figure 4.2.1. There is a surplus if the price is

A) $2.
B) $3.
C) above $4.
D) below $4.
E) $4.

Question 55

When price is too low, we see

A) excess supply.
B) shortages.
C) unsold products.
D) rising inventories.
E) frustrated sellers.

Question 56

A shortage creates pressure for the

A) price to fall.
B) price to sit still.
C) price to rise.
D) quantity demanded to increase.
E) quantity supplied to decrease.

Question 57

When price is too high, we see

A) excess supply.
B) shortages.
C) frustrated buyers.
D) long lineups.
E) falling inventories.

Question 58

Falling prices for a product

A) create incentives for consumers to buy more, switching from more expensive substitutes.
B) eliminate surpluses.
C) create incentives for businesses to produce less.
D) decrease quantity supplied of the product.
E) do all of the above.

Question 59

Figure 4.2.3.
Look at Figure 4.2.3. At a price of $12 there is a

A) surplus of 20.
B) shortage of 20.
C) surplus of 10.
D) surplus of 40.
E) shortage of 8.

Question 60

How do price adjustments eliminate a shortage?

A) As price rises, quantity demanded decreases and quantity supplied increases.
B) As price rises, quantity demanded increases and quantity supplied decreases.
C) As price falls, quantity demanded decreases and quantity supplied increases.
D) As price falls, quantity demanded increases and quantity supplied decreases.
E) As price falls, quantity demanded increases and quantity supplied increases.

Question 61

Shortages create incentives for businesses to make quantity adjustments even when prices don't change.

Question 62

When inventories are rising, businesses have incentives to decrease quantity supplied because price is less than marginal benefits.

Question 63

When inventories decrease, it signals businesses to lower the price.

Question 64

In markets with shortages, businesses have incentives to increase quantity supplied as long as price exceeds marginal costs.

Question 65

Rising prices provide incentives for businesses to decrease quantity supplied and for consumers to increase quantity demanded.

Question 66

Figure 4.2.3.
Look at Figure 4.2.3. At a price of $8 there is

A) a surplus of 20.
B) a shortage of 20.
C) a surplus of 10.
D) a shortage of 10.
E) none of the above.

Question 67

Falling prices provide incentives for businesses to decrease quantity supplied and for consumers to increase quantity demanded.

Question 68

When the price is too high, inventories increase.

Question 69

Prices are the outcome of a market process of competing bids and offers.

Question 70

There is a shortage when quantity supplied exceeds quantity demanded.

Question 71

Figure 4.2.3.
Look at Figure 4.2.3. At a price of $4, how many units are sold in the market?

A) 20 units
B) 30 units
C) 40 units
D) zero units
E) none of the above

Question 72

Businesses adjust quantities more frequently than they adjust prices.

Question 73

Businesses adjust prices more frequently than they adjust quantities.

Question 74

When inventories increase, it signals businesses to lower the price.

Question 75

Without appropriately defined property rights, markets fail.

Question 76

Figure 4.2.3.
Look at Figure 4.2.3. At a price of $4 there is a

A) surplus of 20.
B) shortage of 20.
C) surplus of 10.
D) surplus of 40.
E) shortage of 40.

Question 77

When the price is too low, shortages cause the price to fall further.

Question 78

Rising prices provide incentives for businesses to increase supply and for consumers to decrease demand.

Question 79

Falling prices provide incentives for businesses to decrease supply and for consumers to increase demand.

Question 80

There is a surplus when quantity supplied exceeds quantity demanded.