Question 1

Which of the following is evidence of a surplus of bananas?
A) Firms raise the price of bananas.
B) The price of bananas is lowered in order to increase sales.
C) The equilibrium price of bananas rises due to an increase in demand.
D) The quantity of bananas demanded is greater than the quantity supplied.

Accepted Answer

If there is a surplus of bananas, firms will have to lower the price of bananas to increase sales and clear the excess supply. Therefore, the lowering of the price of bananas is evidence of a surplus.

Question 2

Which of the following is evidence of a shortage of walnuts?
A) Firms lower the price of walnuts.
B) The price of cashews is lowered in order to make up for the walnut shortage.
C) The equilibrium price of walnuts falls due to a decrease in demand.
D) The quantity of walnuts demanded is greater than the quantity supplied.

Accepted Answer

The quantity of walnuts demanded being greater than the quantity supplied is evidence of a shortage. This indicates that there is not enough supply to meet the demand, resulting in a shortage.

Question 3

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?
A) The demand for digital music players is greater than the supply of digital music players.
B) Some consumers will be unable to obtain digital music players at the market price and will have an incentive to offer to buy the product at a higher price.
C) The price of digital music players will rise in response to the shortage; as the price rises the quantity demanded will increase and the quantity supplied will decrease.
D) The shortage will cause a decrease in the equilibrium price of digital music players.

Accepted Answer

The answer of Assume there is a shortage in the...

Question 4

Which of the following describes a characteristic of a perfectly competitive market?
A) There are many buyers but few sellers.
B) There are many sellers but few buyers.
C) There are many buyers and sellers.
D) Equilibrium is achieved when demand for the product sold in the market equals the supply.

Accepted Answer

A perfectly competitive market is characterized by the presence of many buyers and sellers, all selling and buying standardized goods or services at a market-determined price. In such a market, no single buyer or seller has the power to influence the market price, and entry and exit are easy. Option A and B suggest a market where there may be a monopoly or oligopoly power structure. Option D is true for all types of markets, not just perfectly competitive ones.

Question 5

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the market price is $21. Which of the following statement is true?
A) There is a shortage that will cause the price to increase; quantity demanded will then decrease and quantity supplied will increase until the price equals $25.
B) There is a shortage that will cause the price to increase; quantity supplied will then decrease and quantity demanded will increase until the price equals $25.
C) There will be a shortage that will cause the price to increase; demand will then decrease and supply will increase until the price equals $25.
D) There is a shortage that will cause the price to decrease; quantity demanded will then increase and quantity supplied will decrease until the price equals $25.

Accepted Answer

In a market, when the current price is below the equilibrium price, there is a shortage because the quantity demanded exceeds the quantity supplied. This shortage puts upward pressure on the price. As the price increases, the quantity demanded will decrease, and the quantity supplied will increase until the market reaches equilibrium, where supply equals demand. This is consistent with choice A's description.

Question 6

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for coffee grinders. Compare the conditions in the market when the price is $15 and when the price is $21. Which of the following describes how the market differs at these prices?
A) At each price there is a shortage; the shortage is greater at $15 than at $21.
B) The difference between quantity supplied and quantity demanded is greater at $21 than at $15.
C) At each price there is a shortage; firms will raise the equilibrium price in order to eliminate the shortage.
D) At each price the demand for coffee grinders exceeds the supply of coffee grinders.

Accepted Answer

At a lower price ($15), the quantity demanded exceeds the quantity supplied by a larger margin than at a higher price ($21), indicating a greater shortage at the lower price. This is a basic principle of supply and demand: as price decreases, demand typically increases (leading to a larger shortage if supply doesn't match), and as price increases, the quantity demanded usually decreases (reducing the shortage).

Question 7

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the price of coffee grinders is $50. At this price
A) the quantity supplied exceeds the quantity supplied by 100. The price will eventually fall to $25 where quantity demanded will equal quantity supplied.
B) the supply exceeds the demand by 90. Some producers will have an incentive to offer to sell coffee grinders at a lower price.
C) there is a surplus equal to 90 coffee grinders that will be eliminated when the price falls to $25.
D) there is a surplus equal to 90 coffee grinders and the price of coffee grinders will fall until demand is equal to supply.

Accepted Answer

The answer of Figure 3-6 
-Refer to Figure 3-6. The...

Question 8

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Assume that the market price is $35. Which of the following statements is true?
A) There is a surplus that will cause the price to decrease; quantity demanded will then increase and quantity supplied will decrease until the price equals $25.
B) There is a surplus that will cause the price to decrease; quantity supplied will then increase and quantity demanded will decrease until the price equals $25.
C) There will be a surplus that will cause the price to decrease; demand will then increase and supply will decrease until the price equals $25.
D) There is a surplus that will cause the price to increase; quantity demanded will then decrease and quantity supplied will increase until the price equals $25.

Accepted Answer

The answer of Figure 3-6 
-Refer to Figure 3-6. The...

Question 9

Assume that there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?
A) The supply of hybrid automobiles is greater than the demand for hybrid automobiles.
B) Some consumers will be unable to obtain hybrid automobiles at the market price and will have an incentive to offer to buy the product at a higher price.
C) The price of hybrid automobiles will fall in response to the surplus; as the price falls the quantity demanded will increase and the quantity supplied will decrease.
D) The surplus will cause an increase in the equilibrium price of hybrid automobiles.

Accepted Answer

In a surplus situation, there is an excess supply of a product in the market. As a result, the price of the product falls as suppliers try to sell off the excess at a lower price. With a lower price, the quantity demanded increases as consumers are more likely to buy the product. This increase in demand and decrease in supply lead to a reduction in the surplus until the market reaches equilibrium. Therefore, choice C is the correct answer. Choice A is incorrect because it suggests that the supply of hybrid automobiles is greater than the demand, which is not necessarily true as it depends on the magnitude of the surplus. Choice B is incorrect because it assumes that some consumers will be willing to pay a higher price, which may not be the case as the surplus implies that suppliers are already struggling to sell all their products at the current market price. Choice D is incorrect because a surplus would not cause an increase in equilibrium price but rather a decrease.

Question 10

At a product's equilibrium price
A) anyone who needs the product will be able to buy the product, regardless of ability to pay.
B) the federal government will provide the product to anyone who cannot afford it.
C) not all sellers who are willing to accept the price will find buyers for their products.
D) any buyer who is willing and able to pay the price will find a seller for the product.

Accepted Answer

At equilibrium price, the demand for the product equals the supply of the product, meaning that all buyers who are willing and able to pay the price will find a seller for the product. However, not all sellers who are willing to accept the price will find buyers for their products if there is an excess supply of the product. Choice A and B are incorrect as the equilibrium price does not guarantee that anyone who needs the product will be able to buy it, and the federal government is not required to provide the product to those who cannot afford it.

Question 11

At market equilibrium,
A) demand equals supply.
B) quantity demanded equals quantity supplied.
C) surpluses are greater than shortages.
D) shortages are greater than surpluses.

Accepted Answer

At market equilibrium, the quantity of the good or service demanded by consumers is equal to the quantity supplied by producers, also known as the point where demand and supply curves intersect. Therefore, the correct answer is that quantity demanded equals quantity supplied, which is only described in Option B.

Question 12

Hurricane Katrina damaged a large portion of refining and pipeline capacity when it swept through the Gulf coast states in August 2005. As a result of this, many gasoline distributors were not able to maintain normal deliveries. At the pre-hurricane equilibrium price (i.e., at the initial equilibrium price), we would expect to see
A) a surplus of gasoline.
B) the quantity demanded equal to the quantity supplied.
C) a shortage of gasoline.
D) an increase in the demand for gasoline.

Accepted Answer

Since Hurricane Katrina damaged a large portion of refining and pipeline capacity, many gasoline distributors were not able to maintain normal deliveries. This will result in a shortage of gasoline at the pre-hurricane equilibrium price.

Question 13

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Assume that the price of tote bags is $15. At this price
A) the quantity demanded exceeds the quantity supplied by 75. The price will eventually rise to $25 where quantity demanded will equal quantity supplied.
B) the demand exceeds the supply of tote bags by 55. Some consumers will have an incentive to offer to buy tote bags at a higher price.
C) there is a shortage, equal to 55 tote bags, that will be eliminated when the price rises to $25.
D) there is a shortage equal to 55 tote bags; the price of tote bags will rise until demand is equal to supply.

Accepted Answer

At a price of $15, the quantity demanded exceeds the quantity supplied by 55. This creates a shortage of tote bags equal to 55. As a result, the price will rise to eliminate the shortage, and the new equilibrium price will be $25 where quantity demanded will equal quantity supplied. Therefore, option C is the correct answer.

Question 14

Figure 3-6 
-Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Compare the conditions in the market when the price is $50 and when the price is $35. Which of the following describes how the market differs at these prices?
A) At each price there is a surplus; the surplus is greater at $35 than at $50.
B) The difference between quantity supplied and quantity demanded is greater at $50 than at $35.
C) At each price there is a surplus; firms will lower the equilibrium price in order to eliminate the surplus.
D) At each price the supply of tote bags exceeds that demand for tote bags.

Accepted Answer

At $50, the quantity supplied exceeds the quantity demanded by a larger amount than at $35. This is evident by looking at the distance between the supply and demand curves at each price. At $50, the distance is greater, indicating a larger surplus.

Question 15

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?
A) There is a surplus of letters written by Booth and a shortage of letters written by Lincoln.
B) Many people are more fascinated by villains and anti-heroes than by heroic figures.
C) There are more letters available for collectors to buy that were written by Lincoln than there are letters that were written by Booth.
D) Booth was a well-known actor; the demand for his letters rose as wealthy actors attempted to buy them.

Accepted Answer

The answer of Auctions in recent years have resulted in...

Question 16

Figure 3-5 
-Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by
A) a price increase, increasing the supply and decreasing the demand.
B) a price decrease, decreasing the supply and increasing the demand.
C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded.
D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.

Accepted Answer

In a free market, a shortage occurs when the quantity demanded exceeds the quantity supplied at the current price. To eliminate the shortage, suppliers will increase the price, which will then increase the quantity supplied and decrease the quantity demanded until the market reaches equilibrium. Therefore, the correct answer is D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.

Question 17

In a perfectly competitive market, there are ________ buyers and ________ sellers.
A) many; few
B) few; many
C) many; many
D) few; few

Accepted Answer

A perfectly competitive market is characterized by many buyers and many sellers, who each have little to no control over the market price. This ensures that the market price is determined solely by supply and demand forces.

Question 18

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?
A) The demand for Booth letters increases.
B) The supply of Lincoln letters increases.
C) The demand for Lincoln letters increases and the supply of Booth letters increases.
D) The demand for Lincoln letters decreases and the demand for Booth letters increases.

Accepted Answer

If both the demand for Lincoln letters increases and the supply of Booth letters increases, this would lead to a decrease in the price differences between the two types of letters as there is a larger supply of one type of letter and a larger demand for the other type of letter. However, the other choices would not necessarily lead to a decrease in price differences - if the demand for Booth letters increases, this may result in even higher prices for those letters, while an increase in the supply of Lincoln letters or a decrease in the demand for Lincoln letters may not necessarily have an impact on the demand for or supply of Booth letters.

Question 19

Figure 3-5 
-Refer to Figure 3-5. At a price of $20, the quantity sold
A) is 0 units.
B) is 4 units.
C) is 8 units.
D) cannot be determined.

Accepted Answer

The answer of Figure 3-5 
-Refer to Figure 3-5. At...

Question 20

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until
A) the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium.
B) quantity demanded equals quantity supplied. The equilibrium price will then be lower than the market price.
C) all consumers will be able to afford the product.
D) quantity demanded equals quantity supplied. The market price will then equal the equilibrium price.

Accepted Answer

If the quantity supplied exceeds the quantity demanded, the market price will fall until quantity demanded equals quantity supplied. At this point, the market will be in equilibrium and the market price will be the same as the equilibrium price.

Quiz 3: Where Prices Come From: the Interaction of Demand and Supply

Which of the following is evidence of a surplus of bananas?

Which of the following is evidence of a shortage of walnuts?

Assume there is a shortage in the market for digital music players. Which of the following statements correctly describes this situation?

Which of the following describes a characteristic of a perfectly competitive market?

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the market price is $21. Which of the following statement is true?

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for coffee grinders. Compare the conditions in the market when the price is $15 and when the price is $21. Which of the following describes how the market differs at these prices?

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for coffee grinders. Assume that the price of coffee grinders is $50. At this price

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Assume that the market price is $35. Which of the following statements is true?

Assume that there is a surplus in the market for hybrid automobiles. Which of the following statements correctly describes this situation?

At a product's equilibrium price

At market equilibrium,

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Assume that the price of tote bags is $15. At this price

Figure 3-6 -Refer to Figure 3-6. The figure above represents the market for canvas tote bags. Compare the conditions in the market when the price is $50 and when the price is $35. Which of the following describes how the market differs at these prices?

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. What is a reason for this difference in price?

Figure 3-5 -Refer to Figure 3-5. In a free market such as that depicted above, a shortage is eliminated by

In a perfectly competitive market, there are buyers and sellers.

Auctions in recent years have resulted in higher prices paid for letters written by John Wilkes Booth than those written by Abraham Lincoln. Which of the following events would cause the price differences in these letters to get smaller?

Figure 3-5 -Refer to Figure 3-5. At a price of $20, the quantity sold

If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until