Question 1

Other things being equal, a higher price induces
A) buyers to reduce the amount they want to buy and sellers to increase the amount they are willing to sell.
B) buyers to increase the amount they want to buy and sellers to reduce the amount they are willing to sell.
C) buyers to reduce the amount they want to buy and sellers to reduce the amount they are willing to sell.
D) buyers to increase the amount they want to buy and sellers to increase the amount they are willing to sell.

Accepted Answer

According to the law of demand, as the price of a good increases, the quantity demanded decreases. Buyers will therefore reduce the amount they want to buy. On the other hand, according to the law of supply, as the price of a good increases, the quantity supplied increases. Sellers will therefore increase the amount they are willing to sell. Therefore, a higher price induces buyers to reduce the amount they want to buy and sellers to increase the amount they are willing to sell.

Question 2

Suppose local educators argue that teachers' salaries are too low. At the same time it is said that the school district received 750 applications for 5 new openings. Are salaries too low? Explain.

Accepted Answer

The answer of Suppose local educators argue that teachers' salaries...

Question 3

Prices in a market economy perform a rationing function because they reflect
A) the demand of all buyers in the market.
B) the extent to which the goods are necessities.
C) the strength of the supply curve.
D) the relative scarcity of the goods.

Accepted Answer

Prices in a market economy reflect the relative scarcity of goods. This means that goods that are more scarce will have higher prices and goods that are more abundant will have lower prices. This rationing function helps to allocate resources efficiently by allocating them to the uses that are most highly valued by consumers.

Question 4

Queuing is a way to ration goods
A) on a first-come, first-serve basis.
B) through prices.
C) through the use of political power.
D) through markets.

Accepted Answer

Queuing is a system where goods are distributed on a first-come, first-served basis. It is not based on prices, political power, or markets but on the order in which people arrive to receive the goods.

Question 5

All other factors being constant, a reduction in price tends to cause which of the following?
A) an increase in supply and an increase in demand
B) a reduction in supply and an increase in demand
C) an increase in quantity supplied and a reduction in quantity demanded
D) a reduction in quantity supplied and an increase in quantity demanded

Accepted Answer

According to the law of demand, when the price of a good or service decreases, the quantity demanded increases. At the same time, the law of supply states that when the price of a good or service decreases, the quantity supplied also decreases. Therefore, a reduction in price would result in a reduction in quantity supplied and an increase in quantity demanded.

Question 6

The rationing function of prices refers to
A) the situation when government must intervene in a market when there is a large shortage or surplus.
B) the synchronization of decisions by buyers and sellers that leads to an equilibrium.
C) the synchronization of decisions by buyers and sellers through the direction of government agencies.
D) the situation when only the rich get the goods they want.

Accepted Answer

The rationing function of prices refers to how prices direct scarce resources towards their most valued uses by synchronizing the decisions of buyers and sellers that lead to an equilibrium. As prices rise due to a shortage, buyers are rationed by bidding up the price, which incentivizes sellers to increase production. As prices fall due to a surplus, sellers are rationed by lowering the price, which incentivizes buyers to purchase more. This results in a market equilibrium where supply and demand are balanced.

Question 7

Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs of producing CDs increase. What will happen in the market for CDs?

Accepted Answer

The answer of Assume that CDs are a normal good...

Question 8

Describe the market process that should occur if the price of a product is below its equilibrium price; now describe what would occur if the price is above its equilibrium price, assuming no market interference.

Accepted Answer

The answer of Describe the market process that should occur...

Question 9

Ways to ration goods include
A) first-come, first-served.
B) political power.
C) prices.
D) all of the above.

Accepted Answer

All of the methods listed - first-come, first-served, political power, and prices - are ways to ration goods. Each method determines how scarce resources are distributed among people who want them.

Question 10

In a market system, relative scarcities of resources are indicated by
A) supply and demand being out of equilibrium.
B) surpluses.
C) excess demand and excess supply.
D) relative market prices.

Accepted Answer

In a market system, the relative scarcities of resources are indicated by the prices of goods and services. When a resource is scarce, its price will go up, reflecting the increased demand for it. Conversely, when a resource is abundant, its price will go down. Therefore, relative market prices are the best indicator of the scarcities of resources in a market system.

Question 11

In economic terms, the total price of a pound of meat for an individual who has waited in line is
A) the money price paid to the butcher for the pound of meat.
B) the money price of meat relative to the price of bread or other necessity.
C) the money price of the meat plus the opportunity cost of time spent waiting in line.
D) the money price of an equal amount of meat substitute, such as beans and rice.

Accepted Answer

The total price of a pound of meat for an individual who has waited in line includes not only the money price paid to the butcher, but also the opportunity cost of the time spent waiting in line. Therefore, the correct answer is C, which states that the total price of the pound of meat includes both the money price of the meat and the opportunity cost of time spent waiting in line. Option A is incorrect because it only considers the money price of the meat. Option B is incorrect because it compares the price of meat to the price of other goods and services, but it does not directly address the cost of waiting in line. Option D is incorrect because it suggests comparing the price of meat to an alternative substitute, but it does not include the opportunity cost of time spent waiting in line.

Question 12

In a world of scarcity, there has to be some way to ration the available resources. According to economists, the most efficient use of available resources occurs when rationing occurs via
A) queuing.
B) lotteries.
C) political power.
D) the price system.

Accepted Answer

The price system is the most efficient way to ration resources in a world of scarcity. This is because the price of a good is determined by supply and demand, which reflects the scarcity of the good. As supply decreases, the price increases, which incentivizes consumers to conserve the resource and producers to increase production. This creates a market equilibrium where resources are allocated to their most valuable uses. Queuing and lotteries are inefficient because they do not take into account the value of the good to the consumer or the cost of production. Political power is also prone to corruption and may not allocate resources efficiently.

Question 13

Would it take longer for a labor market to move to a new equilibrium for house painters or architects? Why?

Accepted Answer

The answer of Would it take longer for a labor...

Question 14

Which of the following statements about a price system is TRUE? I. Prices ration goods and services.
II) Prices indicate relative scarcity.
A) I only
B) II only
C) Both I and II
D) Neither I nor II

Accepted Answer

Both statement I and statement II are true about the price system. Prices serve as an effective tool for rationing goods and services when there is a shortage because consumers are willing to pay higher prices to obtain a scarce good. Additionally, prices indicate relative scarcity because goods and services that are more abundant and less in demand will have lower prices, while goods and services that are scarcer and more in demand will have higher prices.

Question 15

In a market, the rationing function of prices results in
A) long waiting lines.
B) a price ceiling.
C) an equilibrium between supply and demand.
D) a shortage or surplus.

Accepted Answer

The rationing function of prices refers to the fact that prices direct goods and services to those who are willing and able to pay for them. In a market, this results in an equilibrium between supply and demand, where the quantity of goods or services supplied is equal to the quantity demanded. This balance ensures that resources are allocated efficiently and that shortages or surpluses are avoided. Therefore, option C is the correct answer. Options A and B are incorrect because long waiting lines and price ceilings are signs of market distortions and inefficiencies, which can occur when prices are not allowed to freely adjust to market conditions. Option D is incorrect because shortages and surpluses are temporary imbalances that occur when the market is not in equilibrium.

Question 16

A long line at the campus bookstore at the beginning of the term is an example of
A) price rationing.
B) an ineffective price ceiling.
C) a non-price rationing device.
D) an ineffective price floor.

Accepted Answer

A long line at the campus bookstore indicates that the bookstore is using a non-price rationing device, such as first-come, first-served, instead of adjusting prices to balance supply and demand. Students who are willing to wait in line are able to purchase the books they need, regardless of the price. This suggests that the bookstore is not effectively using price rationing (choice A) or price ceilings/floors (choices B and D) to manage demand for textbooks.

Question 17

Which of the following will tend to occur when a surplus exists in a market?
A) supply will increase and demand will decrease until the surplus disappears.
B) supply will decrease and demand will increase until the surplus disappears.
C) the price will tend to rise over time.
D) the price will tend to decrease over time.

Accepted Answer

When a surplus exists in a market, it means that there is an excess supply of goods over the demand for those goods. As a result, sellers will want to decrease the price of their goods to attract buyers, and buyers will be less motivated to purchase because they have more options. This will ultimately result in a decrease in the price of goods over time until the surplus is eliminated. Therefore, the correct answer is that the price will tend to decrease over time.

Question 18

Suppose that initially a market is in equilibrium at a price of $10 and a quantity of 5000 units per day. Several months later, the market is in a new equilibrium at a price of $5 and a quantity of 5000 units per day. What happened in the market?

Accepted Answer

The answer of Suppose that initially a market is in...

Question 19

Suppose that the market for coffee is in equilibrium at a price of $9.50 per pound and a monthly quantity of 20 million pounds. News of a drought in Brazil arrives so that people know that the supply of coffee months from now will be sharply reduced. What, if anything, will happen in the coffee market now? Explain.

Accepted Answer

The answer of Suppose that the market for coffee is...

Question 20

According to the text, during World War II rationing was conducted in the U.S. through the use of
A) queuing.
B) lotteries.
C) coupons.
D) sharing.

Accepted Answer

The text states that rationing during World War II in the U.S. was conducted through the use of "coupons." Queuing, lotteries, and sharing are not mentioned as methods of rationing.

Quiz 4: Extensions of Demand and Supply Analysis

Other things being equal, a higher price induces

Suppose local educators argue that teachers' salaries are too low. At the same time it is said that the school district received 750 applications for 5 new openings. Are salaries too low? Explain.

Prices in a market economy perform a rationing function because they reflect

Queuing is a way to ration goods

All other factors being constant, a reduction in price tends to cause which of the following?

The rationing function of prices refers to

Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs of producing CDs increase. What will happen in the market for CDs?

Describe the market process that should occur if the price of a product is below its equilibrium price; now describe what would occur if the price is above its equilibrium price, assuming no market interference.

Ways to ration goods include

In a market system, relative scarcities of resources are indicated by

In economic terms, the total price of a pound of meat for an individual who has waited in line is

In a world of scarcity, there has to be some way to ration the available resources. According to economists, the most efficient use of available resources occurs when rationing occurs via

Would it take longer for a labor market to move to a new equilibrium for house painters or architects? Why?

Which of the following statements about a price system is TRUE? I. Prices ration goods and services. II) Prices indicate relative scarcity.

In a market, the rationing function of prices results in

A long line at the campus bookstore at the beginning of the term is an example of

Which of the following will tend to occur when a surplus exists in a market?

Suppose that initially a market is in equilibrium at a price of $10 and a quantity of 5000 units per day. Several months later, the market is in a new equilibrium at a price of $5 and a quantity of 5000 units per day. What happened in the market?

According to the text, during World War II rationing was conducted in the U.S. through the use of