Question 1

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 the demand for Lincoln letters increases and the supply of Booth letters increases at the same time, it would create a situation where the supply of Lincoln letters would be more in line with the demand for them, making their value similar to that of the Booth letters. This would cause the price difference between the two types of letters to shrink.

Question 2

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

In a shortage, the demand for a product exceeds the supply. This means that not all consumers will be able to obtain the product at the market price. Some consumers may offer to buy the product at a higher price, creating an incentive for suppliers to increase production and for more suppliers to enter the market. Option A is incorrect because it simply restates the definition of a shortage. Option C is partially correct in that the price will likely rise, but it incorrectly assumes that the quantity supplied will decrease, when in fact suppliers may increase production to take advantage of the higher prices. Option D is incorrect because a shortage would cause an increase, not a decrease, in the equilibrium price.

Question 3

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 statement "the quantity of walnuts demanded is greater than the quantity supplied" indicates that there is a shortage of walnuts in the market. This means that consumers are willing to buy more walnuts at the current price, but there aren't enough walnuts available to meet that demand.

Question 4

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 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

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

Lowering the price of bananas is a common strategy to increase sales when there is a surplus of bananas. Option A is incorrect because firms would not raise the price if there is a surplus. Option C is incorrect because an increase in demand would cause the price to rise, not the reverse. Option D is incorrect because it describes a situation where there is a shortage, not a surplus.

Question 7

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 8

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 a price of $50, the quantity supplied exceeds the quantity demanded by a greater margin than at a price of $35, as shown by the larger gap between the supply and demand curves. This is because at a higher price, there is a greater incentive for suppliers to produce and offer more tote bags for sale, while at the same time, consumers are less willing to buy as many. At a price of $35, the gap between supply and demand is smaller, indicating that the market is closer to equilibrium.

Question 9

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

Market equilibrium is the point where the quantity of a good or service that buyers are willing and able to purchase is equal to the quantity that sellers are willing and able to produce and sell. This means that at market equilibrium, the quantity demanded and quantity supplied are equal, resulting in neither a shortage nor a surplus of the good or service. Therefore, choice B is the correct answer.

Question 10

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 is a surplus in the market. In order to get rid of the surplus, sellers will start to lower the price until the quantity demanded equals the quantity supplied. This is known as the equilibrium price, and at this point, the market will be in equilibrium. Therefore, the correct choice is D, where the market price will fall until quantity demanded equals quantity supplied and the market price will then equal the equilibrium price.

Question 11

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 a...

Question 12

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 market clears and demand equals supply. This means that there are enough buyers for every seller at the prevailing price. Therefore, any buyer who is willing and able to pay the price will find a seller for the product. Option A and B cannot be true because they imply that some buyers may not be able to afford the product, which is not the case at equilibrium price. Option C is incorrect because at equilibrium price, all willing sellers find willing buyers.

Question 13

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 many buyers and sellers, which ensures that no one buyer or seller can influence the market price. In a perfectly competitive market, sellers sell a standardized product and information is widely available, ensuring that all market participants have access to the same information. Equilibrium is achieved when demand equals supply, ensuring that there is no excess supply or demand in the market.

Question 14

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 figure...

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 3-6 
-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 shown to be 170 while the quantity supplied is shown to be 115. This indicates a shortage of 55 tote bags (170-115=55). The shortage will eventually be eliminated when the price rises to $25 where the quantity demanded will equal the quantity supplied. Choice A is incorrect because the price may not rise all the way to $25 immediately, but will gradually increase until it reaches equilibrium. Choice B is incorrect because it assumes consumers will offer to buy at a higher price, but this is not necessarily the case. Choice D is incorrect because it is the same as choice A, which is incorrect.

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

In a perfectly competitive market, there are many buyers and many sellers. This means no single buyer or seller has any significant influence over the market price, and both buyers and sellers face a wide range of choices.

Question 18

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...

Question 19

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

The damage to refining and pipeline capacity reduces the ability of gasoline distributors to maintain normal deliveries. This will decrease the supply of gasoline, causing a shortage at the pre-hurricane equilibrium price.

Question 20

Assume 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

A surplus in the market indicates that there is excess supply, meaning that the quantity supplied exceeds the quantity demanded. As a result, sellers will need to lower the price of hybrid automobiles in order to attract enough demand to clear the surplus. This is consistent with choice C, which correctly states that the price of hybrid automobiles will fall in response to the surplus, leading to an increase in the quantity demanded and a decrease in the quantity supplied. Choices A, B, and D are incorrect because they suggest outcomes that are inconsistent with the concept of a surplus.

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

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?

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?

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

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?

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

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 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?

At market equilibrium

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

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

At a product's equilibrium price

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 price of coffee grinders is $50.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 price of tote bags is $15.At this price

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

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