Question 1

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:
A)less than $1.75.
B)at least $1.75 but less than $2.
C)exactly $1.75.
D)exactly $2.00.

Accepted Answer

A buyer will purchase an item if, and only if, its price is less than or equal to the buyer's reservation price. Since Moe buys a slice of pizza for $1.75, his reservation price must be at least $1.75, and since he does not buy a slice of pizza for $2.00, his reservation price must be less than $2.00.

Question 2

A seller's reservation price is generally equal to:
A)the buyer's reservation price.
B)the seller's average cost.
C)the seller's marginal cost.
D)the market price.

Accepted Answer

A seller's reservation price is generally equal to the seller's marginal cost.

Question 3

Refer to the accompanying figure. The equilibrium price is ________, and the equilibrium quantity is ________. 
A)$8; 6
B)$6; 4
C)$4; 6
D)$2; 8

Accepted Answer

The equilibrium quantity and price of a product are the values that correspond to the intersection of the supply and demand curves.

Question 4

A seller's reservation price is generally equal to:
A)the buyer's reservation price.
B)the seller's opportunity cost of producing an additional unit.
C)the seller's marginal benefit from producing an additional unit.
D)the market price.

Accepted Answer

A seller's reservation price is the smallest dollar amount for which a seller would be willing to sell an additional unit, which is generally the same as their opportunity cost of producing an additional unit.

Question 5

The supply curve illustrates that firms:
A)increase the supply of a good when its price rises.
B)increase the quantity supplied of a good when its price rises.
C)decrease the quantity supplied of a good when input prices rise.
D)decrease the supply of a good when its price rises.

Accepted Answer

The supple curve is upward sloping, reflecting the fact that as price rises, so does the quantity supplied.

Question 6

Which of the following is NOT a characteristic of a market in equilibrium?
A)There is neither excess supply nor excess demand.
B)Neither buyers nor sellers want the price to change.
C)Sellers can sell as many units as they want at the equilibrium price.
D)Buyers can buy as many units as they want at the equilibrium price.

Accepted Answer

Even when the market is in equilibrium, sellers would be pleased to receive a higher price and buyers would be happy to pay a lower price.

Question 7

The price of bananas will increase in response to:
A)an excess supply of bananas.
B)an excess demand for bananas.
C)an increase quantity of bananas supplied.
D)an increase in the supply of bananas.

Accepted Answer

If the quantity of bananas demanded exceeds the quantity supplied, then price will rise.

Question 8

Refer to the accompanying figure. At a price of $3, there will be: 
A)an excess demand of 5 units.
B)an excess demand of 7 units.
C)an excess supply of 7 units.
D)an excess supply of 2 units.

Accepted Answer

At a price of $3 buyers will want to buy 7 units and sellers will want to sell 2 units, a difference of 5 units.

Question 9

When a market is in equilibrium:
A)there is either excess demand or excess supply.
B)both excess demand and excess supply are positive.
C)both excess demand and excess supply are positive and equal to each other.
D)there is neither excess demand nor excess supply.

Accepted Answer

There is neither excess demand nor excess supply when the market is in equilibrium.

Question 10

When the current price of a good is below the equilibrium price:
A)buyers have an incentive to offer to pay sellers more than the current price.
B)there will be excess supply.
C)the price will tend to stay below the equilibrium price.
D)sellers will notice their inventories are growing.

Accepted Answer

If, at the current price, there are more buyers who want to buy a good than there are sellers who wish to sell it, then frustrated buyers will have an incentive to offer to pay sellers a higher price to obtain the good.

Question 11

Excess demand occurs:
A)whenever the market is in equilibrium.
B)whenever the market is not in equilibrium.
C)when price is above the equilibrium price.
D)when price is below the equilibrium price.

Accepted Answer

Excess demand occurs when price is below the equilibrium price, so that the quantity demanded is greater than the quantity supplied.

Question 12

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:
A)at least $5.00.
B)$4.50.
C)greater than $4.50 but no more than $5.00.
D)$5.00.

Accepted Answer

Curly did not want to sell hot dogs at $4.50, so his reservation price must be more than $4.50, but since he is willing to sell for $5.00, his reservation price cannot be more than $5.00.

Question 13

If there is an excess supply of sport utility vehicles, then:
A)supply is greater than demand.
B)quantity supplied is greater than quantity demanded.
C)demand is greater than supply.
D)quantity demanded is greater than quantity supplied.

Accepted Answer

Excess supply occurs when the quantity supplied exceeds the quantity demanded.

Question 14

Refer to the accompanying figure. At a price of $9, there will be: 
A)an excess demand of 5 units.
B)an excess supply of 6 units.
C)an excess demand of 1 unit.
D)an excess supply of 5 units.

Accepted Answer

At a price of $9 buyers will want to buy 1 unit, and sellers will want to sell 6 units, a difference of 5 units.

Question 15

If price is above the equilibrium price, then there will be:
A)both excess supply and excess demand.
B)neither excess supply nor excess demand.
C)excess supply.
D)excess demand.

Accepted Answer

If price is above the equilibrium price, the quantity supplied will be greater than the quantity demanded.

Question 16

As the price of a good rises:
A)firms generally decrease the supply of the good.
B)more firms can cover their opportunity cost of producing the good.
C)firms generally increase the supply of the good.
D)government regulation becomes more justified.

Accepted Answer

At higher prices, more sellers find that the price is greater than their opportunity cost of producing the good.

Question 17

Refer to the accompanying figure. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be: 
A)$4.
B)less than $4.
C)greater than $6.
D)greater than $4.

Accepted Answer

At a price of $4, the quantity demanded is greater than the quantity supplied, so price will rise.

Question 18

The quantity that sellers wish to sell tends to ________ as price increases, and so the supply curve is ________ sloping.
A)increase; downward
B)decrease; downward
C)increase; upward
D)decrease; upward

Accepted Answer

As price increases, so does the quantity supplied, implying that the supply curve slopes upward.

Question 19

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:
A)marginal revenue.
B)equilibrium price.
C)reservation price.
D)producers surplus.

Accepted Answer

A seller's reservation price is the smallest dollar amount for which a seller would be willing to sell an additional unit. A seller's reservation price is generally equal to the seller's marginal cost of producing an additional unit of output.

Question 20

Equilibrium price and quantity are determined by:
A)demand.
B)supply.
C)government regulations.
D)both supply and demand.

Accepted Answer

Equilibrium results from the interaction of buyers and sellers.

Quiz 3: Supply and Demand

When a slice of pizza at the student union sold for $2, Moe did not purchase any. When the price fell to $1.75, Moe purchased a slice each day for lunch. Thus, we can infer that Moe's reservation price for a slice of pizza is:

A seller's reservation price is generally equal to:

Refer to the accompanying figure. The equilibrium price is , and the equilibrium quantity is .

A seller's reservation price is generally equal to:

The supply curve illustrates that firms:

Which of the following is NOT a characteristic of a market in equilibrium?

The price of bananas will increase in response to:

Refer to the accompanying figure. At a price of $3, there will be:

When a market is in equilibrium:

When the current price of a good is below the equilibrium price:

Excess demand occurs:

Suppose that the market price for hot dogs sold by street vendors has just risen from $4.50 to $5.00, and that in response Curly has now begun operating a hot dog cart. We can assume that Curly's reservation price for hot dogs is:

If there is an excess supply of sport utility vehicles, then:

Refer to the accompanying figure. At a price of $9, there will be:

If price is above the equilibrium price, then there will be:

As the price of a good rises:

Refer to the accompanying figure. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be:

The quantity that sellers wish to sell tends to as price increases, and so the supply curve is sloping.

Jessica's marginal cost for producing a pitcher of lemonade is $0.25. Therefore, $0.25 is her:

Equilibrium price and quantity are determined by: