Question 1

If the supply of a good increased, what would be the effect on the equilibrium price and quantity?

Accepted Answer

When supply increases, the supply curve shifts to the right, leading to a lower equilibrium price and a higher equilibrium quantity.

Question 2

When a conflict arises in a major oil-exporting area of the world, such as the Middle East, the price of gasoline already in the storage tanks at local gas stations usually increases. Which of the following best explains this occurrence?

Accepted Answer

Gas station owners raise prices in anticipation of higher replacement costs due to potential supply disruptions from the conflict, reflecting expected future costs.

Question 3

Which of the following occurs when a shortage occurs in the market for a good?

Accepted Answer

When there is a shortage, the quantity demanded exceeds the quantity supplied. This typically leads to an increase in price, which encourages producers to supply more and consumers to purchase less, moving the market towards equilibrium.

Question 4

Which of the following would cause an increase in the price of gasoline and an expansion in the equilibrium quantity?

Accepted Answer

An increase in the popularity and use of SUVs, which consume more gasoline, would increase the demand for gasoline, leading to a higher price and greater equilibrium quantity.

Question 5

Which of the following is necessary for the invisible hand of market prices to work properly?

Accepted Answer

The invisible hand of market prices relies on competition and well-defined property rights to allocate resources efficiently. These conditions ensure that individuals acting in their self-interest will lead to outcomes beneficial for society.

Question 6

Market prices provide information to consumers, helping them coordinate their activities so long as

Accepted Answer

Competition and freedom for buyers and sellers to choose prices ensure that market prices reflect supply and demand, allowing consumers to make informed decisions.

Question 7

Market prices generally promote social cooperation because they

Accepted Answer

Market prices provide information about the relative scarcity and value of goods and services, guiding individuals to make decisions that align with the needs and wants of others, thus promoting cooperation through voluntary exchange.

Question 8

According to economic theory, which of the following would most likely cause the demand curve for hamburgers to decrease?

Accepted Answer

A drop in the price of hot dogs, a substitute good, would likely cause consumers to buy more hot dogs instead of hamburgers, thus decreasing the demand for hamburgers.

Question 9

The term market always refers to

Accepted Answer

A market refers to a group of buyers and sellers of a particular good or service, not necessarily requiring a specific time, place, or an auctioneer.

Question 10

When competition is present and property rights protected and enforced, market prices will

Accepted Answer

Market prices, when competition is present and property rights are protected, provide signals and incentives for individuals to develop skills and produce goods and services that are valued by others, thus encouraging efficient and forward-looking economic behavior.

Question 11

The efficiency of market organization is dependent on which of the following?

Accepted Answer

Competitive markets and well-defined and enforced private property rights are crucial for market efficiency as they ensure that resources are allocated efficiently and that individuals have the incentive to invest and innovate.

Question 12

In a competitive market economy, a resource in short supply will be allocated

Accepted Answer

In a competitive market economy, resources are allocated based on profitability. Firms that can use the resource most efficiently and profitably will be willing to pay more for it, thus securing the resource.

Question 13

Suppliers recognize there is a shortage in the market for their product when they notice that

Accepted Answer

When inventories are falling, it indicates that the demand for the product is outpacing the supply, signaling a shortage in the market.

Question 14

Just before Valentine's Day, the price of roses increases dramatically. This is because

Accepted Answer

The price of roses increases because demand increases significantly around Valentine's Day, while the supply remains relatively constant, leading to higher prices.

Question 15

When oil prices increased to record levels in the 1970s, salaries dramatically increased for petroleum geologists skilled in finding oil. Those geologists who moved from other areas to the higher paying jobs were

Accepted Answer

The invisible hand concept suggests that individuals seeking their own economic self-interest can inadvertently benefit society. By moving to higher-paying jobs, geologists were responding to market demands, which likely helped increase oil supply and stabilize prices, thus serving society's needs.

Question 16

Which of the following would lead to an increase in the demand for rental apartments in your area?

Accepted Answer

An increase in the number of out-of-town students attending the local college would lead to a higher demand for rental apartments as these students need accommodation.

Question 17

The forces of supply and demand assure that

Accepted Answer

When there is excess demand for a good, the price tends to rise until the market reaches a new equilibrium where quantity demanded equals quantity supplied.

Question 18

The Invisible Hand Principle suggests that

Accepted Answer

The Invisible Hand Principle, introduced by Adam Smith, suggests that individuals pursuing their own self-interest in a competitive market environment can lead to outcomes that benefit society as a whole, as if guided by an "invisible hand."

Question 19

Price is important in a market economy because it

Accepted Answer

Price is crucial in a market economy as it helps eliminate imbalances between supply and demand, serves as a rationing mechanism, and coordinates the choices of consumers and producers, thus bringing them into harmony.

Question 20

If a surplus exists in a market we know that the actual price is

Accepted Answer

A surplus occurs when the actual price is above the equilibrium price, leading to a situation where the quantity supplied exceeds the quantity demanded.

Quiz 3: Demand, Supply, and the Market Process