Question 1

"If gasoline were taxed,the price of gasoline would rise.Consequently,the demand for gasoline would fall,causing the price to fall to the original level." This statement is

Accepted Answer

The statement confuses demand with quantity demanded. The price increase resulting from a gas tax would reduce the quantity demanded, but not necessarily the overall demand for gasoline. Therefore, the statement is incorrect.

Question 2

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

Accepted Answer

When competition is present and property rights protected and enforced, market prices will encourage self-interested individuals to develop skills that are expected to be valuable in the future. This is because competition and property rights encourage individuals to invest in their skills and knowledge in order to gain a competitive advantage in the market, leading to improved productivity and efficiency. This also leads to a higher quality of goods and services produced at a lower cost, ultimately benefiting consumers. Therefore, option C is the correct answer. Options A and B are incorrect as they do not reflect the positive impacts of competition and property rights on market prices. Option D is incorrect as market prices may either increase, decrease, or remain the same depending on various factors such as supply and demand.

Question 3

Economic efficiency requires that

Accepted Answer

Economic efficiency is achieved when the benefits of an economic activity exceed its costs. This means that all economic activities that generate more benefits than costs to individuals in the economy should be undertaken. This helps ensure that resources are allocated efficiently and that society is able to maximize its overall welfare. Choices A, B, and C do not necessarily contribute to economic efficiency.

Question 4

If coffee and cream are complements,a decrease in the price of coffee will cause

Accepted Answer

When the price of coffee decreases, people may buy more coffee, which leads to an increase in the demand for cream as consumers will utilize cream more frequently and hence the complementary relationship will trigger.

Question 5

A freeze in Florida devastates the orange crop at the same time a new study is released showing the health benefits of vitamin C (leading consumers to want to buy more orange juice).How will the equilibrium price and quantity of orange juice change in response to the combination of these two events?

Accepted Answer

The freeze in Florida reduces the supply of oranges, which leads to a decrease in the supply of orange juice. At the same time, the release of a new study on the health benefits of vitamin C increases the demand for orange juice. The combination of these events shifts the demand curve to the right and the supply curve to the left. The resulting equilibrium price will depend on the relative magnitudes of these shifts, but it is likely that the price will increase due to the reduced supply and increased demand. The effect on equilibrium quantity is ambiguous because it will depend on the relative magnitudes of the shifts in demand and supply, but it is likely that there will be some decrease in quantity due to the reduced supply.

Question 6

According to the law of supply,as the price of a good decreases

Accepted Answer

The answer of According to the law of supply,as the...

Question 7

When Adam Smith said economic activity was directed by an "invisible hand," he was referring to the fact that

Accepted Answer

Adam Smith believed that when individuals pursue their own self-interest in a competitive market, the resulting economic activity is guided by an "invisible hand" towards serving the public interest. This means that the market forces of supply and demand work to efficiently allocate resources and create goods and services that people want and need, even though individual decision-makers are only concerned with their own interests. This idea forms the basis of modern free-market economics.

Question 8

"Falling consumer income from the recent recession has hurt automakers in more ways than one.Not only have sales of new cars fallen,but car prices have fallen as well.As a result,the major automakers have announced cutbacks in production and layoffs of workers." Which of the following places these statements in the proper economic terminology within the context of the supply and demand model? [Note: It may help to graph this first.]

Accepted Answer

The statement describes a decrease in both demand (from falling consumer income) and quantity supplied (due to cutbacks in production and layoffs). This is represented by a leftward shift of both the demand and supply curves, resulting in a decrease in equilibrium quantity and a possible decrease in equilibrium price. Therefore, B is the correct answer as it describes a decrease in demand and a decrease in quantity supplied.

Question 9

If the market price is above the equilibrium price,there will be a tendency for price to decrease,causing

Accepted Answer

The answer of If the market price is above the...

Question 10

John advertises his used car for $3,000 in the newspaper.He would be willing to sell his used car for as low as $2,000.He is offered $2,600 for it from a buyer and accepts it.In this trade,John receives

Accepted Answer

Producer surplus is the difference between the price a seller is willing to sell a good for and the actual price they receive. John was willing to sell his car for as low as $2,000, but he sold it for $2,600. Therefore, his producer surplus is $600 ($2,600 - $2,000 = $600). Option A is incorrect because John did not receive $3,000, which was the advertised price. Option B is incorrect because John did not receive $2,600 as the producer surplus, but rather that was the actual selling price. Option D is incorrect because consumer surplus refers to the difference between the maximum amount a consumer is willing to pay and the actual price paid, which is not applicable in this scenario.

Question 11

A decrease in the supply of a good will

Accepted Answer

A decrease in supply means that there is less of the good available in the market. This can lead to an increase in the price of the good because consumers will be willing to pay more to obtain the limited supply. As the price of the good increases, the quantity demanded may decrease, but it does not necessarily mean that there will be a decrease in demand for the good. It is also unlikely that a decrease in supply will cause the price of the good to fall. Finally, there is no reason to believe that a decrease in supply will increase the quantity of the good bought and sold.

Question 12

If the demand for a good increases,which of the following will generally occur in a market setting?

Accepted Answer

An increase in demand leads to an increase in quantity demanded which results in an increase in price. As a result, suppliers will increase their production to respond to the increased price, and the quantity supplied will increase to reach equilibrium. However, the price will not decrease because of the increase in demand. Likewise, profit can increase as a result of increased demand and higher prices. Therefore, the correct answer is C.

Question 13

Which of the following would most likely decrease the price of beef?

Accepted Answer

Lower prices of grains used to produce cattle feed would decrease the cost of producing beef, leading to lower prices for consumers.

Question 14

A decrease in the price of flour will shift the supply curve for donuts

Accepted Answer

A decrease in the price of flour, which is an input in the production of donuts, will reduce the cost of production for donuts makers. This will encourage more firms to produce donuts, increasing the supply of donuts. Therefore, the supply curve for donuts will shift rightward, causing the equilibrium price to decrease and the equilibrium quantity to increase.

Question 15

(I)The height of the demand curve for a commodity indicates the maximum amount the consumer would be willing to pay for each unit of the good. (II)The height of the supply curve for a commodity indicates the minimum price the seller would accept for each unit of the good.

Accepted Answer

Both statements are true. The height of the demand curve represents the maximum amount the consumers are willing to pay for each unit of the good, and the height of the supply curve represents the minimum price the sellers would accept for each unit of the good.

Question 16

If the demand for beer increased,what would be the effect on the equilibrium price and quantity of beer?

Accepted Answer

An increase in demand would lead to a shift in the demand curve to the right, resulting in a new equilibrium price and quantity. The price would increase due to the shift in demand, and the quantity supplied would increase as well to meet the new level of demand. Therefore, the correct answer is C- price increases, quantity increases.

Question 17

A hurricane damaged much of the housing in Miami.Shortly thereafter,the price of plywood rose significantly.The events suggest that

Accepted Answer

The answer of A hurricane damaged much of the housing...

Question 18

Figure 3-24
 
-In Figure 3-24,which of the following is true?

Accepted Answer

The answer of Figure 3-24
 
-In Figure 3-24,which of the...

Question 19

Over the past 20 years both the quantity of health care provided and health care prices have been rising rapidly.Economic theory would suggest that the observed data could best be explained as

Accepted Answer

The fact that both the quantity of health care provided and health care prices have been rising rapidly suggests that there has been an increase in demand, while supply remained relatively constant. This is because an increase in demand would lead to both an increase in the quantity of health care provided and an increase in prices, while an increase in supply would lead to an increase in quantity provided but a decrease in prices.

Question 20

All things constant,a decrease in bus,train,and airplane fares will

Accepted Answer

The answer of All things constant,a decrease in bus,train,and airplane...

Quiz 3: Asupply,demand,and the Market Process