Question 1

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 equilibrium price, leading to an excess supply which can result in higher selling prices above 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. The large number of buyers and sellers ensures that no single buyer or seller can influence the market price. This results in a situation where the market price is determined solely by the forces of supply and demand.

Question 3

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 demanded of bananas is greater than the quantity supplied.

Accepted Answer

If there is a surplus of bananas, the price of bananas may be lowered in order to increase sales and reduce the surplus. Firms raising the price of bananas would not indicate a surplus. A rise in equilibrium price would indicate an increase in demand, not necessarily a surplus. If the quantity demanded of bananas is greater than the quantity supplied, it would indicate a shortage, not a surplus.

Question 4

Market equilibrium occurs where supply equals demand.

Accepted Answer

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

Question 5

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 of tote bags 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

The intersection of the demand and supply curves at a price of $15 indicates that the quantity demanded exceeds the quantity supplied by 55 tote bags, resulting in a shortage. As a result, there will be competition among buyers to obtain the limited supply of tote bags, driving up the price. The price will continue to rise until the shortage is eliminated and the market reaches equilibrium, where quantity demanded equals quantity supplied, at a price of $25. Therefore, choice C is the best answer.

Question 6

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

When the price is $50, the quantity supplied exceeds the quantity demanded by 200 units, whereas at $35, the difference between quantity supplied and quantity demanded is only 100 units. Therefore, the difference between quantity supplied and quantity demanded is greater at $50 than at $35. This implies that there is a larger surplus in the market at $50, and potentially more downward pressure on price to reach equilibrium.

Question 7

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

Accepted Answer

This is known as the law of supply and demand, where prices move towards equilibrium to balance supply and demand.

Question 8

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 9

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 the quantity supplied exceeds the quantity demanded, there will be an oversupply in the market. To clear the excess inventory, sellers will cut the price, leading to a decrease in market price. As the price falls, the quantity demanded will increase, and the quantity supplied will decrease. The market will eventually reach a point where quantity demanded equals quantity supplied, which is the equilibrium point. At the equilibrium point, the market price will equal the equilibrium price. Therefore, the correct answer is D.

Question 10

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

Accepted Answer

The answer of A shortage occurs when the market price...

Question 11

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

Accepted Answer

The answer of Scarcity is defined as the situation that...

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 decreases.
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 the demand for Lincoln letters increases and the supply of Booth letters increases, this would shift the market equilibrium towards Lincoln letters, causing their prices to increase and the prices of Booth letters to decrease. This would result in smaller price differences between the two types of letters. Option A would only affect the price of Booth letters, option B would only affect the price of Lincoln letters, and option D would cause the price differences to potentially increase if the demand for Booth letters increases more than the demand for Lincoln letters decreases.

Question 13

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

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

Question 14

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 an increase in the equilibrium price of digital music players.

Accepted Answer

When there is a shortage in the market for a particular product, it means that demand exceeds supply. Therefore, some consumers will be unable to obtain the product at the market price and will be willing to pay a higher price, creating an incentive for sellers to increase their price. Option A is incorrect because it simply restates the definition of a shortage. Option C is partially correct, as the price of digital music players may rise in response to the shortage, but the quantity demanded will decrease and the quantity supplied will increase (not decrease). Option D is incorrect because it assumes that there is an equilibrium price, which may not necessarily be the case in a market with a shortage.

Question 15

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 demanded of walnuts is greater than the quantity supplied.

Accepted Answer

If the quantity demanded of walnuts is greater than the quantity supplied, it is evidence of a shortage of walnuts. This means that consumers are wanting more walnuts than what the producers are currently able to supply.

Question 16

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 17

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

Accepted Answer

This is actually the opposite of what a shortage is. A shortage is when the quantity demanded is greater than the quantity supplied.

Question 18

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

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

Question 19

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 needs to decrease, which will decrease the quantity supplied and increase the quantity demanded until they are equal (i.e. at equilibrium). This is achieved by decreasing the price, which will decrease the quantity supplied (since producers will be less willing to supply at the lower price) and increase the quantity demanded (since consumers will be more willing to purchase at the lower price). Therefore, choice C is the best answer.

Question 20

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 figure...

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

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

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

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

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.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?

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

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

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

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

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

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

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 is evidence of a shortage of walnuts?

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

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

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

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?