Question 1

In drawing a supply curve, the labels for the axes are

Accepted Answer

The answer of In drawing a supply curve, the labels...

Question 2

The reason that the supply curve is upward sloping is

Accepted Answer

The reason that the supply curve is upward sloping is increasing marginal costs. As the quantity of output produced increases, the cost of producing each additional unit increases due to factors such as scarcity of resources, the law of diminishing returns, and other costs associated with increasing production.

Question 3

The Law of Diminishing Marginal Utility suggests that

Accepted Answer

The Law of Diminishing Marginal Utility states that as a person consumes more and more of a good, the additional utility or satisfaction gained from each additional unit consumed decreases. This means that while the total utility may still be increasing, the marginal utility (the satisfaction gained from one more unit) is decreasing. So, choice C is the correct answer.

Question 4

If the price of a typical good rises, the quantity supplied for that good will

Accepted Answer

According to the law of supply, if the price of a good rises, the quantity supplied of that good typically increases, as suppliers are willing to produce more at higher prices.

Question 5

Unless circumstances are quite out of the ordinary, a supply curve will be

Accepted Answer

Unless circumstances are quite out of the ordinary, a supply curve will be upward sloping. This means that as the price of a good increases, the quantity supplied by producers will also increase. This is because producers are willing to supply more of a good at higher prices, as it becomes more profitable to do so. However, if there are unusual circumstances such as an excess supply of a good, then the supply curve can be horizontal. Likewise, if the cost of producing a good increases, the supply curve can shift upward, resulting in less of the good being supplied at any given price.

Question 6

An increase in the income of consumers will cause the

Accepted Answer

An increase in consumer income generally leads to an increase in demand for normal goods and a decrease in demand for inferior goods. Thus, the demand for some goods will rise while for others it will fall.

Question 7

If you heard overheard a farmer discussing his planting plans for the upcoming season and he said "The price of corn has gone way up. I know I'll have to put some money into fertilizer on the field where I was going to plant soybeans, but it will be worth it this year." This would be consistent with which justification for an upward sloping supply curve

Accepted Answer

The answer of If you heard overheard a farmer discussing...

Question 8

The substitution effect suggests that

Accepted Answer

The substitution effect occurs when the price of a good increases and consumers switch to a substitute or alternative good that is now relatively less expensive. Therefore, they buy less of what they originally wanted and use something else instead.

Question 9

The notion that the money in your possession will buy less when the price rises is provided as the explanation for

Accepted Answer

The real-balances effect is the notion that as the price level rises, the purchasing power of money decreases, causing consumers to reduce their quantity demanded. This is due to the fact that the amount of money held by consumers, also known as real balances, buys fewer goods and services at higher prices.

Question 10

The real balances effect suggests that

Accepted Answer

The real balances effect suggests that when prices are higher, the purchasing power of your money decreases, and as a result, you can buy less. This is because the same amount of money will not be able to purchase as much as it would have been able to at lower prices.

Question 11

The notion that when the price of the good you want rises you will buy less of it because you will find another good that will do instead, is provided as the explanation for

Accepted Answer

The notion described is the substitution effect, which occurs when a price increase of a certain good causes consumers to switch to a substitute good that is cheaper. This results in a decrease in the quantity demanded of the original good.

Question 12

If you heard overheard a farmer discussing his planting plans for the upcoming season and he said "The price of corn has gone way up. I know I'll have to put some money into fertilizer on that field on the hill that's been idle all these years, but it will be worth it this year." This would be consistent with which justification for an upward sloping supply curve

Accepted Answer

The statement about needing to put money into fertilizer suggests that the farmer is experiencing increasing marginal cost, as it will require more resources to produce the same amount of output on the previously idle field. Additionally, the fact that the farmer sees this as worth it due to the higher price of corn suggests that he is motivated to produce more due to the need for higher prices in one good to motivate a shift in production from another. However, this statement does not necessarily support the real-balance effect or the idea of diminishing marginal utility.

Question 13

Which of the following will impact both supply and demand

Accepted Answer

A change in expected future price can impact both supply and demand. If consumers expect the price to increase in the future, they may buy more now, leading to an increase in demand. On the other hand, if producers expect the price to increase in the future, they may hold onto their inventory, leading to a decrease in supply.

Answer: D 
 A change in income can impact both supply and demand. If consumers have more income, they may be willing to spend more on goods and services, leading to an increase in demand. On the other hand, if producers have more income, they may be able to invest in more machinery or labor, leading to an increase in supply.

Question 14

A friend is telling you that they tend to drink more at parties than they do at home. You ask about why and they tell you that though they enjoy their fifth and sixth drinks the same regardless of where they are, the fact that it is free at the party and they have to pay to replace it at home, you translate that statement into a verification of

Accepted Answer

The statement reflects the notion of diminishing marginal utility because it indicates that the satisfaction (utility) derived from each additional drink does not decrease based on the location (home vs. party), which is a key aspect of diminishing marginal utility. The focus is on how the utility from each additional unit consumed remains the same, rather than on the effects of price changes or wealth on consumption.

Question 15

If the price of a typical good falls, the quantity supplied for that good will

Accepted Answer

According to the law of supply, if the price of a good decreases, the quantity supplied of that good typically decreases as well, because producers are less willing to supply a good at lower prices.

Question 16

If you are given $20 and told to go to the store and buy as many potatoes as you can, the reason your demand curve for potatoes is downward sloping has mostly to do with

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The answer of If you are given $20 and told...

Question 17

If you are grocery shopping and you see that the price of beef has risen and as a result you change your planned menu for the week and buy chicken instead, the reason your demand curve for beef is downward sloping has mostly to do with

Accepted Answer

The substitution effect occurs when the price of a good increases, causing consumers to substitute it with a similar, less expensive good. In this case, the price of beef has risen, so the consumer switches to a substitute good, such as chicken. Therefore, the downward slope of the demand curve for beef can be attributed to the substitution effect.

Question 18

An increase in which of the following determinants of demand will have an ambiguous (uncertain)effect on price

Accepted Answer

An increase in income can have an ambiguous effect on price because it depends on whether the good is a normal or inferior good. For normal goods, demand increases with income, potentially raising prices, while for inferior goods, demand decreases, potentially lowering prices.

Question 19

The Law of Supply indicates that

Accepted Answer

The Law of Supply states that there is a positive relationship between the quantity supplied of a good or service and its price, holding all other factors constant. As the price of a good or service increases, suppliers are willing to produce and sell more of it, and as the price decreases, suppliers are willing to produce and sell less of it. This is because higher prices increase the profitability of producing a good, while lower prices decrease it. Therefore, the correct answer is D.

Question 20

The quantity supplied is the amount firms wish to sell

Accepted Answer

The quantity supplied refers to the amount that firms are willing and able to sell at a particular price during a specified period of time. It is a specific quantity, not a range of quantities at different prices.

Quiz 2: Supply and Demand