Question 1

A shortage occurs when the market price is lower than the equilibrium price.

Accepted Answer

A shortage occurs when the quantity demanded exceeds the quantity supplied at a given price, which typically happens when the market price is below the equilibrium price.

Question 2

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

Accepted Answer

In a perfectly competitive market, there are many buyers and many sellers. This ensures that no single buyer or seller can influence the market price.

Question 3

A surplus occurs when the actual selling price is above the market equilibrium price.

Accepted Answer

A surplus occurs when the quantity supplied exceeds the quantity demanded at the market price, which means that the actual selling price is above the market equilibrium price.

Question 4

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 is 105 and the quantity supplied is 50, resulting in a shortage of 55. This shortage will continue until the price rises to a level where quantity supplied equals quantity demanded. Therefore, the price will rise to $25 and the shortage of 55 tote bags will be eliminated. Choice A is incorrect because it assumes that the market will reach the equilibrium price right away, without any adjustment. Choice B is incorrect because it suggests that consumers will offer to buy the remaining tote bags at a higher price, but this is not a sustainable solution in the long run. Choice D is incorrect because it implies that the price will rise indefinitely, which is not necessarily true.

Question 5

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 6

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

When there is a surplus, the price tends to decrease. As the price decreases, the quantity demanded increases and the quantity supplied decreases until equilibrium is reached at $25.

Question 7

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

Accepted Answer

Scarcity refers to the fundamental economic problem of having limited resources to meet unlimited wants and needs, not specifically when demand exceeds supply.

Question 8

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

Accepted Answer

The definition of a shortage is actually the opposite - it is the situation that exists when the quantity of a good demanded is greater than the quantity supplied.

Question 9

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, it means there is an excess supply of bananas in the market. This would result in firms lowering the price to increase sales and clear their inventory. Therefore, option B is the correct answer. Option A is incorrect because firms would not raise the price if there is a surplus as it would further decrease demand. Option C is incorrect because the equilibrium price would only rise if there is an increase in demand, not a surplus. Option D is incorrect because in a surplus, the quantity supplied is greater than the quantity demanded.

Question 10

In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.

Accepted Answer

This is the basic law of supply and demand. When there is an excess supply of a good, the market price will decrease to entice buyers to purchase more, and to discourage suppliers from producing more. As the price falls, the quantity demanded will increase as buyers are willing to purchase more, and the quantity supplied will decrease as suppliers find it less profitable to produce more. Eventually, an equilibrium will be reached where the quantity demanded and quantity supplied are equal, and the market price stabilizes.

Question 11

Figure 3-5
 
-Refer to Figure 3-5.In a free market such as that depicted above, a surplus 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 surplus occurs when the quantity supplied exceeds the quantity demanded at a given price. To eliminate the surplus, the price must decrease, which will decrease the quantity supplied and increase the quantity demanded until equilibrium is reached.

Question 12

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, it would create a more balanced market and lessen the price differences between the two. This is because the increased supply of Lincoln letters would create more options for buyers, making them less inclined to pay high prices for those letters, while the increased demand for Lincoln letters would push up the prices of those letters. On the other hand, the increased supply of Booth letters would make them more readily available, potentially reducing their prices, while the increased demand for those letters would drive up their prices. Together, these forces could lead to a smaller price difference between the two types of letters.

Question 13

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

When quantity supplied exceeds quantity demanded, there is a surplus, causing the market price to fall until supply equals demand, reaching equilibrium.

Question 14

Market equilibrium occurs where supply equals demand.

Accepted Answer

The answer of Market equilibrium occurs where supply equals demand....

Question 15

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, creating a surplus. At $35, there is still a surplus, but it is smaller, indicating that the difference between quantity supplied and quantity demanded is smaller. Therefore, B is the best choice as it accurately describes the difference in the market between the two prices.

Question 16

Figure 3-5
 
-Refer to Figure 3-5.At a price of $20,
A)there would be a surplus of 8 units.
B)there would be a shortage of 8 units.
C)there would be a surplus of 0 units.
D)there would be a shortage of 4 units.

Accepted Answer

At a price of $20, the quantity supplied exceeds the quantity demanded by 8 units, resulting in a surplus of 8 units.

Question 17

Figure 3-5
 
-Refer to Figure 3-5.At a price of $5, the quantity sold
A)is 2 units.
B)is 4 units.
C)is 6 units.
D)cannot be determined.

Accepted Answer

At a price of $5, the quantity sold is 2 units.

Question 18

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 19

Figure 3-5
 
-Refer to Figure 3-5.At a price of $10, the quantity sold
A)is 2 units.
B)is 4 units.
C)is 6 units.
D)is 8 units.

Accepted Answer

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

Question 20

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

If the quantity of walnuts demanded is greater than the quantity supplied, then there is a shortage of walnuts. Choice A does not necessarily indicate a shortage, as firms may lower prices for other reasons. Choice B does not relate to walnuts at all. Choice C may indicate a decrease in demand but does not necessarily mean there is a shortage.

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

A shortage occurs when the market price is lower than the equilibrium price.

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

A surplus occurs when the actual selling price is above the market equilibrium price.

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

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 3-6 -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?

Scarcity is defined as the situation that exists when the quantity demanded for a good is greater than the quantity supplied.

A shortage is defined as the situation that exists when the quantity of a good supplied is greater than the quantity demanded.

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

In response to a surplus the market price of a good will fall; as the price falls, the quantity demanded will increase and quantity supplied will decrease until equilibrium is reached.

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

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?

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

Market equilibrium occurs where supply equals demand.

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?

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

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

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

Figure 3-5 -Refer to Figure 3-5.At a price of $10, the quantity sold

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