Deck 3: Basic Elements of Supply and Demand Part

Question 1

A price at which the amount people wish to buy exceeds the amount that people wish to produce (given upward-sloping supply curves):

A)lies above the equilibrium, market clearing price.
B)lies below the market clearing price.
C)will induce a shift in the demand schedule to achieve equilibrium.
D)is impossible.
E)is none of the above.

Answer 1

lies below the market clearing price.

Question 2

In a competitive market, price is determined by:

A)the costs of producing the good in question.
B)the supply of the good.
C)the decisions of the buyers about how much they are willing to pay.
D)the interaction of tastes and demand.
E)all of the above.

Answer 2

all of the above.

Question 3

One reason that the quantity demanded of a good tends to rise as its price falls is that:

A)the decrease in price shifts the supply curve downward.
B)people feel a bit richer and increase their use of the good.
C)demand has to rise to restore equilibrium after a price reduction.
D)suppliers are willing to supply more at lower prices.
E)the decrease in price shifts the demand curve upward.

Answer 3

people feel a bit richer and increase their use of the good.

Question 4

Given a fixed supply of lamb chops, a reduction in the price of pork chops (close substitutes)will tend to:

A)shift the demand curve for lamb chops to the right.
B)shift the demand curve for pork chops to the right.
C)shift the demand curve for pork chops to the left.
D)raise the price of lamb chops.
E)lower the price of lamb chops.

Question 5

Which of the following does not explain why supply curves typically slope upward and to the right:

A)people are willing to pay a higher price for more goods.
B)extra production brings in the less efficient, higher-cost producers.
C)expanded industry output might cause a labor shortage and subsequently a rise in the wage rate and the cost of production.
D)expanded production may require the use of inferior resources.
E)All the above are valid reasons.

Question 6

When we say that a price in a competitive market is "too high to clear the market" we usually mean that (given upward-sloping supply curves):

A)no producer can cover his costs of production at that price.
B)the quantity supplied exceeds the quantity demanded at that price.
C)producers are leaving the industry.
D)consumers are willing to buy all the units produced at that price.
E)quantity demanded exceeds quantity supplied at that price.

Question 7

Four of the five events described below might reasonably be expected to shift the demand curve for beef to a new position.One would not shift that demand curve.The single exception is:

A)a rise in the price of some good which consumers regard as a substitute for beef.
B)a fall in the price of beef
C)an increase in the money incomes of beef consumers.
D)a widespread advertising campaign undertaken by the producers of a product competitive with beef (e.g.pork).
E)a change in people's tastes with respect to beef.

Question 8

If the market demand curve shifts sharply to the left as the market supply curve moves to the right, we would expect:

A)the same price to prevail, with no change in quantity.
B)the same quantity to prevail.
C)price and quantity to fall.
D)price to fall while quantity may or may not change.
E)quantity to fall while price may or may not change.

Question 9

The market clearing price in a competitive market:

A)is one that will be established immediately when buyers and sellers come together to the market.
B)would persist if actually reached, but doesn't have much significance in real life, due to the lack of any forces tending to push the price to this level.
C)has no significance at all in real life because analysis of competitive markets takes no account of incomes, tastes, or other factors that influence demand.
D)will tend to be reached, although not necessarily immediately, because of the competitive forces set up whenever price is at any level other than equilibrium.
E)has no application except where everyone is an "economic person" (homo economicus).

Question 10

If E were the old equilibrium in the market for wheat in the figure below, and E' the new one, which of the following could have caused the change?

A)Consumer income rose, causing a supply shift.
B)Bad weather caused a supply shift.
C)Consumer income rose, causing a demand shift.
D)Supply and demand both shifted.
E)None of the above are plausible descriptions.

Question 11

An increase in the supply of commodity X for any given price of X could be caused by

A)an increase in the prices of other commodities.
B)an increase in the prices of factors of production important to this commodity.
C)a reduction in the prices of factors of production important to this commodity.
D)an increase in consumer income.
E)none of the above.

Question 12

A shortage of OPEC oil at current market prices will increase oil prices because of:

A)the law of elastic supply.
B)the law of elastic demand.
C)consumers will bid up the price of oil.
D)all of the above.
E)none of the above.

Question 13

The demand curve for a normal good will shift to the right if:

A)income increases.
B)population increases.
C)the price of a substitute good increases.
D)all the above.
E)none of the above.

Question 14

An increase in price will lead to a lower quantity demanded because:

A)suppliers will supply only the smaller amount.
B)some individuals will no longer purchase the good.
C)individuals purchase less of the good.
D)a and b.
E)b and c.

Question 15

If the demand schedule may be written P = 100 - 4Q, and the supply schedule P = 40 + 2Q, then the market clearing price and quantity are:

A)P = 60, Q = 10.
B)P = 10, Q = 6.
C)P = 40, Q = 6.
D)P = 20, Q = 20.
E)none of the above.

Question 16

The demand curve for a normal good will shift to the left if:

A)income increases.
B)population increases
C)the price of a substitute good decreases.
D)all the above.
E)none of the above.

Question 17

The quantity of good X demanded by an individual may depend upon:

A)the individual's income.
B)the price of X.
C)the price of some other goods.
D)all of the above.
E)answers a and b, only.

Question 18

A change in which of the following will not alter the demand curve for rental housing?

A)The price of houses.
B)Rental prices.
C)Incomes of consumers.
D)Energy prices.
E)Growth in the community.

Question 19

In a standard supply-and-demand diagram, what happens when demand decreases?

A)Price declines and quantity demanded rises.
B)Price rises and quantity demanded declines.
C)Price and quantity supplied rise.
D)Price and quantity supplied decline.
E)Price and quantity demanded rise.

Question 20

A drought would probably:

A)cause wheat suppliers to move up their supply curves to a higher price.
B)induce greater demand for wheat, yielding a higher price.
C)cause people to reduce their demand for wheat.
D)induce an upward and leftward shift in wheat's supply curve.
E)lower the prices of substitutes for wheat.

Question 21

Use the following to answer questions :
Figure 3-3
Assume that automotive workers strike and the technological improvements occur at the same time.If initial market conditions were reflected by the structure of Figure 3-3, which of the following must occur?

A)Lower prices.
B)Less quantity.
C)More quantity.
D)Higher prices.
E)Cannot be determined from the given information.

Question 22

Use the following to answer questions :
Figure 3-2
Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-2, a technological advance that makes the production of Q more efficient will cause:

A)P* and Q* to climb.
B)P* and Q* to fall.
C)P* to climb while Q* falls.
D)Q* to climb while P* holds fixed.
E)none of the above.

Question 23

Good growing conditions for wheat would probably

A)increase the prices of substitutes for wheat.
B)induce greater demand for wheat, yielding a higher price.
C)cause wheat suppliers to move up their supply curves to a higher price.
D)cause people to reduce their demand for wheat.
E)induce a rightward shift in wheat's supply curve.

Question 24

One reason that supply curves display positive slope is that:

A)expanded production may require the use of superior resources.
B)people are not willing to pay a higher price for more goods.
C)expanded industry output might cause a labor shortage and subsequently increase the wage rate included in the cost of production.
D)extra production brings in the more efficient, lower-cost producers.
E)the law of diminishing returns is important to producers.

Question 25

Upward-sloping supply curves are the result of:

A)increasing returns to scale.
B)increasing costs of labor.
C)changes in government policies.
D)changes in technology.
E)none of the above

Question 26

According to the law of demand:

A)the intersection of demand and supply establishes the market equilibrium point.
B)consumers' tastes can influence the quantity demanded.
C)there is an inverse relationship between price and the quantity demanded.
D)"all other things held equal" is an important concept.
E)there is a direct relationship between price and the quantity demanded.

Question 27

Use the following to answer questions :
Figure 3-2
Let P* and Q* in Figure 3-2 represent market clearing price and quantity, respectively, of good Q.Given the supply and demand curves drawn in Figure 3-2, a reduction in the price of a substitute good for Q will cause:

A)P* and Q* to climb.
B)P* to climb while Q* declines.
C)P* to climb while Q* holds fixed.
D)P* to fall while Q* climbs.
E)P* and Q* to fall.

Question 28

If you were a government official and wanted to raise the price of oil, which of the following actions would you take?

A)Take oil from government storage and sell it on the open market.
B)Encourage producers to drill more wells.
C)Try to lower the price of alternative fuels.
D)Try to lower average family income.
E)Encourage producers to cut back on drilling for oil.

Question 29

When we say that a price in a competitive market is "too low to clear the market," we usually mean that:

A)the quantity supplied exceeds the quantity demanded at that price, so there is too much competition among producers to try to get rid of that supply.
B)consumers are not willing to buy enough at that price.
C)producers are leaving the industry.
D)the quantity demanded exceeds the quantity supplied at that price.
E)no producer can cover costs of production at that price.

Question 30

Use the following to answer questions :
Figure 3-3
Assume that automotive workers go on strike, so that the production of cars falls.Given the supply and demand curves in Figure 3-3, which of the following would result in comparison to the initial equilibrium position?

A)Prices fall, Quantity falls
B)Prices rise, Quantity falls
C)Prices rise, Quantity rises
D)Prices and Quantity do not change.
E)None of the above.

Question 31

Use the following to answer questions :
Figure 3-2
Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-2, a reduction in the price of an input used in the production of Q will cause:

A)P* and Q* to climb.
B)P* to climb while Q* falls.
C)P* to climb while Q* holds steady.
D)P* to fall while Q* climbs.
E)P* and Q* to fall.

Question 32

One reason why the quantity demanded of a good tends to fall as its price rises is that:

A)the increase in price shifts the supply curve upward.
B)the increase in price shifts the demand curve downward.
C)at higher prices, suppliers are willing to supply less.
D)people feel poorer and cut down on their use of the good.
E)demand has to fall to restore equilibrium after a price rise.

Question 33

The position of the supply schedule for American-made cars will not be directly affected by which of the following?

A)Union wage rates.
B)Car prices.
C)The price of tires.
D)A change in assembly technology.
E)All of the above will affect supply.

Question 34

Use the following to answer questions :
Figure 3-1
Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-1, an increase in the price of an input employed in the production of Q can be expected to cause:

A)P* and Q* to climb.
B)P* to climb while Q* falls.
C)P* to climb while Q* holds steady.
D)P* to fall while Q* climbs.
E)P* and Q* to fall.

Question 35

If E were the old equilibrium in the wheat market depicted in the figure below and E' were the new one, which of the following might have caused the change?

A)Good weather caused a supply shift.
B)Good weather caused a demand shift.
C)Bad weather caused a supply shift.
D)Bad weather caused a demand shift.
E)Consumer incomes changed, causing a supply shift.

Question 36

An increase in price will lead to a lower quantity demanded because:

A)suppliers will supply only the smaller amount.
B)quality deteriorates.
C)people will purchase less of the good.
D)all of the above.
E)none of the above.

Question 37

If farmers work harder and longer to maintain their incomes and living standards as their earnings per hour fall, that would involve:

A)an exception to the downward slope of the demand curve for labor.
B)an exception to the upward slope of the supply curve for labor.
C)a confirmation of the downward slope of the supply curve for labor.
D)a confirmation of the upward slope of the supply curve for labor.
E)none of the above.

Question 38

Use the following to answer questions :
Figure 3-1
Given the supply and demand curves drawn for a normal good in Figure 3-1, an increase in income can be expected to cause:

A)equilibrium price and quantity to increase.
B)equilibrium price to increase and equilibrium quantity to fall.
C)equilibrium price to increase while equilibrium quantity holds steady.
D)equilibrium price and quantity to fall.
E)equilibrium price to fall and equilibrium quantity to climb.

Question 39

When the demand curve shifts to the right:

A)equilibrium price increases.
B)equilibrium price decreases.
C)equilibrium quantity increases
D)a and c.
E)b and c.

Question 40

Use the following to answer questions :
Figure 3-1
Let P* and Q* represent market clearing price and quantity, respectively.Given the supply and demand curves drawn in Figure 3-1, the appearance of foreign suppliers willing to sell any quantity at a price slightly higher than equilibrium can be expected to cause:

A)P* and Q* to climb.
B)P* and Q* to fall.
C)P* to climb while Q* falls.
D)Q* to fall while P* holds steady.
E)none of the above.

Question 41

An increase in demand means a movement to a higher quantity along a given demand curve.

Question 42

Use the following to answer questions :
Table 3-1
According to Table 3-1, the equilibrium price for potato chips is:

A)$1.00.
B)$2.00.
C)$2.50.
D)$3.00.
E)$4.00.

Question 43

Over time the fact that some people buy more hamburger at 89 cents per pound than at 69 cents per pound refutes the law of downward-sloping demand.

Question 44

Equilibrium occurs where the demand curve intersects the supply curve.

Question 45

A change in tastes can cause people to move down their demand curve, unlike an increase in income, which will cause the demand curve to shift.

Question 46

The high and rising price of lobsters must be indicative of monopoly in the lobster fishing market.

Question 47

Assume that the demand for boats as shown in the figure below is P = $500 - 10Q, while the supply is P = $100 + 10Q.Market equilibrium would then be:

A)P = 20, Q = 300
B)P = 300, Q = 20
C)P = 20, Q = 20
D)P = 500, Q = 500
E)None of the above.

Question 48

Lower prices coax out higher quantities demanded along a downward-sloping demand curve.

Question 49

Which of the following could affect a demand schedule for petroleum products?

A)A change in the technology of oil production.
B)The discovery of new oil fields in Texas.
C)A strike by oil refinery workers.
D)An increase in national income.
E)None of the above.

Question 50

Assume that the demand for penicillin as reflected in the figure below is P = 40 - .1Q, while supply is P = 10 + .9Q.Market equilibrium would be given by:

A)P = 37, Q = 30
B)P = 30, Q = 37
C)P = 40, Q = 36
D)P = 370, Q = 30
E)None of the above

Question 51

Use the following to answer questions :
Table 3-1
The data in Table 3-1:

A)support the law of demand.
B)indicate that the supply curve is vertical.
C)contradict economic reasoning.
D)both b and c.
E)none of the above.

Question 52

Use the following to answer questions :
Table 3-1
According to Table 3-1, we can be fairly certain that:

A)demand and supply are directly related.
B)if price increases to $6.00, the quantity supplied will increase.
C)if price falls to $0.75, supply will drop to 0.
D)some people will pay almost anything for potato chips.
E)one of the curves is about to shift.

Question 53

Use the following to answer questions :
Figure 3-5
According to the standard supply and demand apparatus, line A in Figure 3-5 should represent:

A)a supply schedule.
B)a demand schedule.
C)points where supply and demand are equal.
D)a demand schedule when income is rising.
E)none of the above.

Question 54

Use the following to answer questions :
Figure 3-5
Point C in Figure 3-5 could represent:

A)a point on the demand schedule for a normal good with higher incomes.
B)an equilibrium point.
C)a point on the supply schedule.
D)both a and c.
E)none of the above.

Question 55

Use the following to answer questions :
Table 3-1
According to Table 3-1, the equilibrium level of output is:

A)1750.
B)1625.
C)1500.
D)1375.
E)none of the above.

Question 56

A shift in supply to the right means that people will produce more at each price indicated.

Question 57

An increase in demand means a movement to a higher price along a given demand curve.

Question 58

Use the following to answer questions :
Table 3-1
According to Table 3-1, for every $1.00 increase in price, the quantity demanded decreases by:

A)5.
B)500.
C)10.
D)25.
E)250.

Question 59

Use the following to answer questions :
Figure 3-5
Which of the following could represent the demand schedule in Figure 3-5?

A)P = 1000 + 2Q
B)P = 3Q - 500
C)P = 200 - 5Q
D)P = Q
E)None of the above.

Question 60

The law of downward-sloping demand states that there is an inverse relation between price and quantity demanded.

Question 61

If supply decreases and family income increases, it is possible that the quantity demanded will remain the same.

Question 62

A fixed supply of apartments can be rationed out by letting market forces establish the market clearing competitive rent rate.

Question 63

If the price of bacon rose because of a poor hog season, then the price and quantity of eggs would be likely to increase (other things being equal).

Question 64

Use the following to answer questions :
Figure 3-6
Given the supply and demand curves drawn in Figure 3-6, a technological advance that makes the production of Q more efficient can be expected to push the market clearing price down and the market clearing quantity up.

Question 65

If the price of bread is causing quantity demanded to increase but not quantity supplied, the price will begin to be pushed upward.

Question 66

Since the amount bought must equal amount sold, at no price can there be a lack of equality between the quantities demanded and supplied of a good.

Question 67

Use the following to answer questions :
Figure 3-6
Given the supply and demand curves drawn in Figure 3-6, an increase in the cost of an input can be expected to push the market clearing price up and the market clearing quantity down.

Question 68

Advertising a product is an attempt by the advertisers to cause people to move down their demand curves.

Question 69

Over time the fact that some people buy less hamburger at 69 cents per pound than at 89 cents per pound refutes the law of downward-sloping demand.

Question 70

The high and rising price of lobsters is not necessarily indicative of monopoly in the lobster-fishing market.

Question 71

Market equilibrium comes at the price which quantity demanded equals quantity supplied.

Question 72

If you observe a stationary price for some commodity, you can guess that demand and supply curves intersect at that price.

Question 73

A surplus in supply means that demanders are not willing to pay the current market price.

Question 74

When a big movement of hogs to market causes pork prices to fall, this will tend to push beef prices down also.

Question 75

A shift in demand to the right means that people want to buy less at each price.

Question 76

Letting the price of oil rise will likely reduce quantity demanded and increase quantity supplied.

Question 77

To say that a price "clears the market" is to say that everyone who wants that commodity is getting all they want.

Question 78

Any change in the price of an input can be expected to move equilibrium price up or down in the same direction along the market demand curve.(Everything else held fixed.)

Question 79

The quantity of labor demanded by an employer typically depends upon the wage that labor is paid.

Question 80

The market mechanism uses price as a rationing device.