Exam Prep Supply And Demand Ch.3 Gebhardt

Chapter 03 Test Bank KEY

1. The goals of the principal participants in the economy are to maximize

A. income for consumers, profits for business, and taxes for government.

B. goods and services for consumers, scarce resources for businesses, and money for government.

C. happiness for consumers, profits for businesses, and general welfare for government.

D. goods and services for consumers, scarce resources for businesses, and general welfare for government.

2. For consumers, most market activity can be explained by the goal of

A. charitable responsibility.

B. maximizing income.

C. profit maximization.

D. maximizing happiness.

3. Which of the following is a goal of businesses?

A. to maximize happiness

B. to maximize profits given resource constraints

C. to produce the greatest quantity of goods

D. to maximize general welfare

4. For government, most market activity can be explained by the goal of

A. public welfare maximization.

B. social responsibility.

C. utility maximization.

D. charitable responsibility.

5. Which of the following is a constraint that motivates economic interactions?

A. the outsourcing of jobs

B. the limited resources that individuals have

C. the limited profit margin for individuals

D. the inability of individuals to take on risk

6. Economic interactions with others are necessary because

A. resources are limited.

B. people are lazy.

C. advertising makes us want additional goods and services.

D. some people are rich and others are poor.

7. A market

A. is any place (physical or digital) where goods are bought and sold.

B. must have a physical location so buyers and sellers can meet.

C. does not exist for the exchange of illegal goods and services.

D. must be approved by the government before it can exist.

8. A market exists for the sale and purchase of

A. computer services, but not nuclear warheads.

B. nuclear warheads, but not illegal drugs.

C. illegal drugs, but not medical services.

D. illegal drugs, computer services, and nuclear warheads.

9. People benefit by participating in the market because

A. resources are no longer limited.

B. it facilitates specialization, increased production, and increased consumption.

C. buyers and sellers have the same goals.

D. participants in the market do not have to make choices.

10. Market participants include

A. business firms and consumers, but not foreigners.

B. consumers only.

C. consumers, business firms, governments, and foreigners.

D. foreigners, but not business firms.

11. Which of the following is not a factor of production?

A. land

B. wages

C. labor

D. capital

12. Any place where factors of production are exchanged is a

A. private-goods market.

B. stock market.

C. product market.

D. factor market.

13. Consumers act as _______ factors of production in the _______ market.

A. sellers; product

B. sellers; factor

C. buyers; product

D. buyers; factor

14. Producers _______ factors of production in the _______ market.

A. Buy; factor

B. Sell; stock

C. Buy; stock

D. Sell; product

15. A market in which finished goods and services are exchanged is a

A. financial market.

B. intermediate-goods market.

C. factor market.

D. product market.

16. Which of the following participates in the product market?

A. consumers only.

B. consumers, governments, and foreigners.

C. governments and consumers only.

D. foreigners only.

17. In the U.S. economy, foreigners participate in

A. the factor market only.

B. the product market only.

C. both the product and factor markets.

D. Foreigners do not participate in the U.S. economy.

18. The direct exchange of one good for another, without the use of money as a medium of exchange, is known as

A. welfare.

B. barter.

C. imports.

D. demand.

19. Consumers provide money as an inflow to which of the following markets?

A. product markets

B. factor markets

C. foreign direct investment markets

D. both product markets and factor markets

20. Producers

A. provide dollars to the product market.

B. purchase factors of production from the factor market.

C. do not participate in the factor market.

D. provide factors of production to the product market.

21. In order to demand a good, the buyer must

A. want the good very much.

B. be both willing and able to pay for it.

C. think that the good has significant utility.

D. be aware of the opportunity costs.

22. Which of the following situations is sufficient to represent current demand for a car?

A. You have plenty of money to buy it, but you can't decide if you want a motorcycle or a car.

B. You have enough money to buy it and you are willing to spend the money on the car.

C. You've decided you want a car and you can possibly borrow the money from a bank.

D. You want to buy a motorcycle and a car and you'll have enough money for both in two years.

23. A demand schedule refers to the combinations of price and quantity that represent the

A. concerns of regulators

B. preferences of businesses

C. desires of consumers

D. demands of producers

24. Ceteris paribus, a change in which of the following would be LEAST likely to cause a shift in the demand curve for jackets?

A. income

B. taste

C. the price of jackets

D. the price of sweaters

25. According to the law of demand, a demand curve

A. is upward-sloping.

B. is downward-sloping.

C. is a horizontal, or flat, line.

D. can slope either upward or downward based on consumer behavior.

26. The quantity of a good demanded in a given time period increases as the price falls, ceteris paribus. This is known as

A. Say's Law.

B. the law of ceteris paribus.

C. the law of demand.

D. the opportunity-cost law.

27. Ceteris paribus, the law of demand says that

A. price and quantity demanded are inversely related.

B. price is constant along a particular demand curve.

C. the demand curve will shift rightward as price increases.

D. businesses will produce more as price increases.

28. According to the law of demand, a change in _______ causes a movement along the demand curve.

A. buyers' expectations

B. the number of buyers

C. the price of the good

D. the price of other related goods

29. Ceteris paribus, the quantity demanded of a good will decrease in response to

A. higher income.

B. a higher price for the good.

C. a rightward shift of the supply curve.

D. a lower price for the good.

30. Ceteris paribus, according to the law of demand, if the price of a computer game increases from $25 to $30, the

A. quantity demanded will not be affected.

B. demand curve for computer games will shift to the left.

C. quantity demanded of computer games will increase.

D. quantity demanded of computer games will decrease.

31. Which of the following will NOT cause a shift in the demand curve for a good?

A. income

B. taste

C. the price of the good itself

D. the prices of other related goods

32. Which of the following is not a determinant of demand?

A. income

B. available technology

C. the price of other goods

D. expectations of income

33. Which of the following will NOT shift the demand curve for natural gas?

A. a change in consumer income

B. a change in consumer expectations

C. a change in the weather and heating requirements

D. a change in the technology used to produce natural gas

34. Ceteris paribus, which of the following will cause the demand for peanut butter to decrease?

A. The factories that produce peanut butter close down for safety reasons.

B. The workers who pick peanuts, the main ingredient in peanut butter, demand a higher wage.

C. Many people learn that they are allergic to peanut butter.

D. It is reported that peanut butter prevents heart attacks.

35. Ceteris paribus, which of the following will cause the demand curve for basketballs to shift to the left?

A. The cost of producing basketballs increases.

B. Consumer incomes increase.

C. Parents decide soccer is a better sport for their children than basketball.

D. People become more interested in basketball as more football players are arrested for drugs.

36. Ceteris paribus, the demand curve for a good will shift to the right in response to

A. a decrease in income

B. an increase in the costs of production

C. an increase in tastes or preferences for the good

D. a higher price for the good

37. Ceteris paribus, which of the following will cause the demand for pizza to increase in a college town?

A. a new pizza restaurant opens near campus

B. a decrease in the costs associated with pizza production

C. a decrease in the price of tacos

D. an increase in the number of students who eat pizza

38. Ceteris paribus means

A. holding everything else constant.

B. allowing the free market to decide, not government.

C. changing prices to see how demand (or supply) shifts.

D. allowing the government to decide, not the market.

39. Economists make a distinction between changes in quantity demanded and changes in demand

A. because the supply curve shifts whenever there is a change in demand.

B. because the demand curve shifts whenever there is a change in quantity demanded.

C. to distinguish a movement along a demand curve from a shift of the demand curve.

D. to distinguish a surplus from a shortage.

40. A change in demand means there has been a shift in the demand curve, and a change in the quantity demanded

A. corresponds to a movement along the demand curve.

B. means a shortage or surplus will result from holding prices constant.

C. results from a change in the price of other related goods.

D. also means demand has shifted.

41. The market demand for a particular good indicates

A. that consumers will purchase more of the good at higher prices, ceteris paribus.

B. that sellers will offer more of the good only at higher prices, ceteris paribus.

C. the total quantities buyers are willing and able to purchase at alternative prices, ceteris paribus.

D. how much of the good is actually purchased in a given period of time.

42. The market supply of a particular good

A. is the sum of the quantities of the good that all producers are willing and able to sell at a particular price.

B. indicates that sellers will produce more of the good at lower prices, ceteris paribus.

C. indicates that consumers will purchase more of the good at higher prices, ceteris paribus.

D. measures the quantity of goods that producers actually sell.

43. Which of the following would not cause the market supply of cell phones to change?

A. Telecommunications are deregulated, and anyone can produce and sell cell phones.

B. A cheaper technology for producing cell phones is developed.

C. A reduction in the desire for cell phones causes the price to fall.

D. Taxes levied on cell phone production are reduced.

44. Which of the following is a determinant of supply?

A. consumer tastes or preferences

B. consumer income

C. prices of the factors of production

D. number of buyers

45. The quantity of a good that suppliers are willing and able to supply at a given price in a given time period depends on

A. income.

B. consumers' expectation of future prices and costs.

C. the costs of producing the good.

D. the consumer demand for the good.

46. Which of the following provides the best example of the law of supply?

A. Falling labor costs cause an increase in supply.

B. Improved technology shifts the supply curve to the right.

C. Some producers leave the industry, and the supply curve shifts to the left.

D. An increase in price entices suppliers to produce more.

47. Ceteris paribus, according to the law of supply, if the price of product Z increases from $6 to $8, then the

A. quantity supplied will not be affected.

B. supply curve for Z will shift to the right.

C. quantity supplied of Z will increase.

D. quantity supplied of Z will decrease.

48. Ceteris paribus, according to the law of supply, if the price of lawn mowing services decreases from $50 per lawn to $45 per lawn, then the

A. quantity supplied of lawn mowing will decrease.

B. supply curve for lawn mowing will shift to the right.

C. quantity supplied of lawn mowing will increase.

D. quantity supplied of lawn mowing will stay the same.

49. A movement along the supply curve is the same as a

A. shift in the supply curve.

B. change in the quantity supplied.

C. change in supply.

D. change in the number of producers.

50. Ceteris paribus, which of the following will cause a rightward shift of the supply curve for plasma TVs?

A. an increase in the cost of materials associated with the production of plasma TV's

B. a decrease in the quantity of labor available to produce plasma TV's

C. a subsidy paid to the producers of plasma TV's

D. a decrease in the price of plasma TV's

51. An increase in the supply of frozen yogurt will take place when

A. the price of frozen yogurt decreases.

B. the cost of producing frozen yogurt decreases.

C. the taxes on frozen yogurt increase.

D. consumer incomes increase.

52. Which of the following events would cause a rightward shift in the supply curve for automobiles?

A. an improvement in the technology used to produce automobiles

B. an increase in the cost of labor for automobile producers

C. an increase in taxes for automobile producers

D. a decrease in the number of sellers

53. Ceteris paribus, which of the following will cause the supply of milk shakes to increase?

A. Consumer incomes increase.

B. A new diet craze suggests that people can consume milk shakes and lose weight.

C. The cost of milk, a key ingredient, decreases.

D. The wages paid to those who work on dairy farms increases.

54. Ceteris paribus, which of the following will cause the supply of paper to decrease?

A. The price of lumber, an ingredient in paper production, increases.

B. The federal government decides to subsidize the production of paper.

C. People rely more on electronic books and less on printed materials.

D. The technology used to produce paper improves.

55. Which of the following will cause a leftward shift of the supply curve for houses?

A. a decrease in consumer incomes

B. an improvement in the technology used to build houses

C. consumer expectations that the price of houses will increase next year

D. an increase in the cost of construction materials

56. Which of the following will cause a leftward shift of the supply curve for electricity?

A. a decrease in the costs associated with the production of electricity

B. a decrease in consumer incomes

C. an increase in the taxes on electricity production

D. an increase in the price of electricity

57. A market is said to be in equilibrium when

A. demand is fully satisfied at all alternative prices.

B. the buying intentions of all consumers are realized.

C. the supply intentions of all sellers are realized.

D. the quantity demanded equals the quantity supplied.

58. In a market, the equilibrium price is determined by

A. only what buyers are willing and able to purchase.

B. only what sellers are willing and able to offer for sale.

C. the interaction of both demand and supply.

D. the government.

59. The equilibrium price and quantity are determined by the

A. market mechanism.

B. magical hand.

C. invisible mind.

D. government.

60. A market shortage occurs when

A. the quantity demanded is less than the quantity supplied at a given price.

B. the market price is below equilibrium.

C. sellers produce a lot of the product and consumers like it a lot.

D. a new product is introduced at the equilibrium price.

61. When there is a shortage in a market, prices are likely to

A. fall because buyers do not wish to buy as much as sellers want to sell.

B. rise because some buyers will offer to pay a higher price.

C. fall because sellers are likely to reduce their production if prices rise.

D. rise because the government will put a price ceiling in place.

62. If a market shortage exists

A. the invisible hand will work to reduce the price.

B. the only solution is for the government to raise the price.

C. producers will compete for customers by reducing prices.

D. consumers will compete for the product by offering to pay more.

63. A market surplus occurs when

A. people cannot buy the amount of goods and services that they are willing and able to buy.

B. the price is less than the equilibrium price.

C. the quantity supplied exceeds the quantity demanded at a given price.

D. there is a price ceiling.

64. When there is a surplus in a market, prices are likely to fall because

A. sellers would rather lower their prices to sell some of their goods or services than keep prices higher and be stuck with unsold products.

B. some buyers will offer to pay a higher price, initiating a move up the supply curve.

C. sellers are likely to increase their production.

D. buyers will wait for the government to establish a price floor.

65. If a market surplus exists

A. the only resolution is for the government to set the price.

B. consumers will compete for the product by offering to pay more.

C. producers will compete for customers by reducing prices.

D. the equilibrium price is equal to the price ceiling.

66. If demand is constant, a decrease in the supply of gasoline will cause the equilibrium price

A. to rise and equilibrium quantity to fall.

B. and equilibrium quantity both to rise.

C. to fall and equilibrium quantity to rise.

D. and equilibrium quantity both to fall.

67. If demand is constant, a leftward shift in the supply curve will result in

A. a decrease in equilibrium quantity and a lower equilibrium price.

B. an increase in equilibrium quantity and a lower equilibrium price.

C. a decrease in equilibrium quantity and a higher equilibrium price.

D. an increase in equilibrium quantity and a higher equilibrium price.

68. The price of chocolate candy bars rises. This could be due to

A. a decrease in the wage rate paid to workers in the candy bar factories.

B. a decrease in the cost of chocolate, which is used to produce candy bars.

C. a subsidy by the federal government for the producers of chocolate candy bars.

D. a decrease in the number of chocolate candy bar producers.

69. If demand is unchanged, a rightward shift in the supply curve for plasma TVs will cause

A. a decrease in equilibrium quantity and a higher equilibrium price.

B. a increase in equilibrium quantity and a higher equilibrium price.

C. a increase in equilibrium quantity and a lower equilibrium price.

D. a decrease in equilibrium quantity and a lower equilibrium price.

70. Which of the following would cause a decrease in the price of automobiles?

A. a technological advancement in automobile manufacturing

B. an increase in the wages paid to automobile assembly line workers

C. a decrease in the cost of gasoline

D. an increase in the number of buyers

71. If supply is unchanged, a decrease in the demand for soft drinks will cause equilibrium price to

A. rise and equilibrium quantity to fall.

B. fall and equilibrium quantity to fall.

C. fall and equilibrium quantity to rise.

D. rise and equilibrium quantity to rise.

72. If supply is constant, a decrease in the demand for potato chips will cause

A. a decrease in equilibrium price and a decrease in equilibrium quantity.

B. an increase in equilibrium price and an increase in equilibrium quantity.

C. a decrease in equilibrium price and an increase in equilibrium quantity.

D. an increase in equilibrium price and a decrease in equilibrium quantity.

73. If supply is unchanged, a decrease in the demand for tacos will cause the equilibrium price to

A. rise and equilibrium quantity to fall.

B. rise and equilibrium quantity to rise.

C. fall and equilibrium quantity to rise.

D. fall and equilibrium quantity to fall.

74. If supply is unchanged, a rightward shift in the demand curve for gourmet ice cream will result in

A. a decrease in equilibrium quantity and a higher equilibrium price.

B. an increase in equilibrium quantity and a higher equilibrium price.

C. a decrease in equilibrium quantity and a lower equilibrium price.

D. an increase in equilibrium quantity and a lower equilibrium price.

75. In the market for web design services, when more companies desire web pages, the equilibrium

A. quantity of web design services decreases.

B. quantity of web design services remains unchanged.

C. quantity of web design services increases.

D. price of web design services will fall.

76. In the market for web design services, if businesses expect consumers to make more on-line purchases, then the equilibrium

A. price of web design services will decrease.

B. price of web design services will increase.

C. quantity of web design services will remain unchanged.

D. quantity of web design services will decrease.

77. If a state decides to reduce the cost of college tuition by providing more Pell grants to students then, ceteris paribus, the

A. quantity demanded of a college education in the state will decrease.

B. demand for a college education in the state will decrease.

C. quantity demanded of a college education in the state will increase.

D. quantity supplied of a college education in the state will increase.

78. If a state adopts a free college tuition program, ceteris paribus, economists expect there to be a

A. a surplus of college education opportunities in the state.

B. a shortage of college education opportunities in the state.

C. a decrease in equilibrium price for a college education in the state.

D. a decrease in equilibrium quantity for a college education in the state.

79. A price ceiling is

A. a lower limit on the price of a good.

B. above the equilibrium price.

C. an upper limit on the price of a good.

D. a limit on the price of goods sold abroad.

80. A price ceiling does all of the following except

A. increase the quantity demanded relative to the equilibrium level.

B. create excess supply.

C. create a market shortage.

D. decrease the quantity supplied relative to the equilibrium level.

81. Shortages are the same thing as excess

A. price.

B. quantity.

C. supply.

D. demand.

82. A market shortage is

A. equal to the quantity supplied.

B. caused by a price ceiling.

C. caused by scarce resources.

D. caused by a price floor.

83. When a price ceiling is set for a market, the quantity demanded will be

A. less than the equilibrium quantity and price will be less than the equilibrium price.

B. less than the equilibrium quantity, and price will be greater than the equilibrium price.

C. greater than the equilibrium quantity, and price will be less than the equilibrium price.

D. greater than the equilibrium quantity, and price will be greater than the equilibrium price.

84. Rent controls are an example of

A. a price floor.

B. a price ceiling.

C. an externality.

D. barter.

85. A price floor is

A. a lower limit on the price of a good.

B. below the equilibrium price.

C. an upper limit on the price of a good.

D. a limit on the price of goods sold to foreigners.

86. A price floor

A. decreases the quantity producers are willing and able to supply relative to the equilibrium level.

B. increases the quantity demanded relative to the equilibrium level.

C. causes excess demand.

D. creates a market surplus.

87. Government price guarantees for certain crops are an example of

A. a price floor.

B. a price ceiling.

C. a monopoly.

D. the market mechanism.

88. Surpluses generate excess

A. price.

B. quantity demanded.

C. supply.

D. demand.

89. When a price floor is established above the equilibrium price, the market will demonstrate

A. a higher equilibrium quantity.

B. a lower equilibrium quantity.

C. a greater quantity demanded.

D. a greater quantity supplied.

90. The doctrine of laissez-faire

A. promotes central planning by the government.

B. explains the inefficiencies of the market system.

C. supports non-intervention by government in the market mechanism.

D. promotes massive government regulation of markets.

91. The invisible hand is most consistent with

A. the use of price ceilings.

B. government failure.

C. the market mechanism without government interference.

D. a market surplus.

92. In a market economy, the _______ determines who gets the goods and services produced

A. magical hand

B. market mechanism

C. government

D. stock market

93. Given income and resource constraints, the market mechanism typically arrives at the _______ outcome when markets work well.

A. perfect

B. government determined

C. optimal

D. disequilibrium

94. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for pecans. Many pecan trees are destroyed by webworms.

A. A

B. B

C. C

D. D

95. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for laptop computers. There is a decrease in the price of computer microchips.

A. A

B. B

C. C

D. D

96. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for desktop computers. Consumers decide they like laptop computers better than desktops.

A. A

B. B

C. C

D. D

97. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for new cars. People begin saving for retirement at a much higher rate.

A. A

B. B

C. C

D. D

98. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for DVD players. People prefer watching movies on DVDs at home instead of going to the movie theater.

A. A

B. B

C. C

D. D

99. To answer the question, select the letter of the diagram that follows which best illustrates the supply and/or demand shift (s) due to the market event described, ceteris paribus.

Consider the market for new houses. The level of income increases for all consumers.

A. A

B. B

C. C

D. D

100.

The equilibrium price and quantity depicted in the figure are, respectively

A. $30 and 5 units.

B. $10 and 10 units.

C. $30 and 15 units.

D. $40 and 10 units.

101.

At a price of $10 there is a

A. Shortage of 10 units.

B. Shortage of 20 units.

C. Surplus of 20 units.

D. Surplus of 10 units.

102.

At a price of $40, there is a

A. Surplus of 10 units.

B. Surplus of 5 units.

C. Shortage of 10 units.

D. Shortage of 5 units.

103.

The highest price at which buyers are willing and able to purchase 5 units is  

A. $20.

B. $30.

C. $40.

D. $50.

104.

The equilibrium price and quantity are

A. $5 and 3 units.

B. $10 and 2 units.

C. $15 and 3 units.

D. $20 and 2 units.

105.

If the actual market price is held to $10 per unit, there will be a

A. surplus of 1 unit.

B. surplus of 2 units.

C. shortage of 1 unit.

D. shortage of 2 units.

106.

If the market price is set at $25 per unit, there will be a

A. surplus of 4 units.

B. surplus of 2 units.

C. shortage of 4 units.

D. shortage of 2 units.

107.

If the market price is set at $20 per unit and this policy is binding

A. there is a shortage.

B. there is excess demand.

C. this is an example of a price floor.

D. the quantity supplied equals the quantity demanded.

108.

If the government wants to use a price ceiling to change the market outcome, it should choose a price of

A. $10.

B. $15.

C. $20.

D. any amount other than $15.

109.

Which panel represents the changes in the market for chicken when farmers use hormones to increase the production of chicken, but consumers are concerned about eating the chicken?

A. A

B. B

C. C

D. D

110.

Which panel represents the changes in the market for beef when the price of corn (cattle feed) rises and the Surgeon General reports that red meat contributes to coronary disease?

A. A

B. B

C. C

D. D

111.

Which panel represents the changes in the market for parking spaces when the student population increases on a college campus and one parking lot has been destroyed to build a new building?

A. A

B. B

C. C

D. D

112.

Which panel represents the changes in the market for hip-hugger jeans when U.S. college students decide hip huggers look really good and a large quantity of cheap hip-hugger jeans are imported into the United States?

A. A

B. B

C. C

D. D

113. Individual demand and supply schedules  

Using the above table, if the price is set at $6, the market

A. is in equilibrium.

B. experiences a shortage of 21 units.

C. experiences a surplus of 28 units.

D. experiences a surplus of 29 units.

114. Individual demand and supply schedules

  If the price is $4, the market

A. is in equilibrium.

B. experiences a shortage of 13 units.

C. experiences a surplus of 15 units.

D. experiences a surplus of 21 units.

115. Demand and supply for trucks (millions of trucks per year)

  If the worldwide price of trucks is $30,000, the truck market

A. is in equilibrium.

B. experiences a shortage of 170 million trucks per year.

C. experiences a surplus of 100 million trucks per year.

D. experiences a surplus of 160 million trucks per year.

116. Demand and supply for trucks (millions of trucks per year)

  If the worldwide price of trucks is $40,000, the truck market

A. is in equilibrium.

B. experiences a shortage of 170 million trucks per year.

C. experiences a surplus of 100 million trucks per year.

D. experiences a surplus of 160 million trucks per year.

117. Demand and supply for trucks (millions of trucks per year)

  The equilibrium price in the worldwide truck market is

A. $20,000.

B. $30,000.

C. $40,000.

D. $50,000.

118. One News Wire, article in the text, "Rents Rising in Hurricane’s Wake" describes the impact of thousands of apartments and houses being destroyed by the storm. This would be modeled by

A. an increase in supply.

B. a decrease in supply.

C. an increase in demand.

D. a decrease in demand.

119. One News Wire, article in the text, "Rents Rising in Hurricane’s Wake" describes the impact of thousands of homes being destroyed by the storm. What will happen to the equilibrium quantity of housing units if the supply decreases?

A. increase.

B. decrease.

C. remain unchanged.

D. either increase or decrease based on the slope of the supply curve.

120. A market exists any place where goods are bought and sold.

A market can be anywhere goods and services are sold.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

121. The goal of consumers, businesses, and governments is to maximize the welfare of society.

The goal of consumers is happiness, for business it is profit, for the government it is the welfare of society.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

122. Consumers strive to maximize their satisfaction given available resources.

Consumers wish to obtain the most they can from scarce resources.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

123. Through specialization and exchange, people are able to consume more than if they made everything for themselves.

Individuals cannot produce everything themselves; therefore, specialization assists in consumers being able to obtain more of what they desire.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Participants

124. The factor market and the product market are essentially the same thing.

The factor market, where businesses are buyers and households are sellers, exchanges the factors of production. The product market, where households are buyers and businesses are sellers, is where final goods and services are exchanged.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

125. Land, labor, capital, and entrepreneurship are bought and sold in the product market.

The factors of production are bought and sold in the factor market.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

126. Producers do not participate in the factor market.

Producers purchase factors of production in the factor market.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

127. Producers supply goods and services to the product market.

Producers supply final goods to the product market for consumers to purchase.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

128. Barter is the direct exchange of one good for another without the use of a monetary unit.

The trade of one good for another with no money involved is barter.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

129. If you really want a new BMW then, from an economic standpoint, you demand it.

You must be ready and willing to purchase to have demand. As a result, your demand won’t exist unless you really want the BMW and have the money to buy it presently.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

130. A decrease in price leads to a decrease in quantity demanded.

If price decreases, quantity demanded will increase due to the inverse relationship of price and quantity demanded affiliated with the law of demand.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

131. The demand schedule and demand curve remain unchanged only so long as the underlying determinants of demand remain constant.

Change in price will lead to movement on the demand curve. It will take a change in a determinant of demand to change the demand schedule.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

132. The demand curve for most goods will shift to the left if consumer income increases.

The demand curve will generally shift to the right if consumer income increases. The exception to this is when a good or service is inferior—that is, less desired as income increases. These are relatively less common than normal goods and services, however.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

133. The demand curve will shift to the right if the number of buyers increases, ceteris paribus.

Number of buyers is a determinant of demand. A change in a determinant will cause a shift in the demand curve.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

134. A market-demand curve can be found by adding together the separate demands of the individual consumers at each price.

The demand curve is a convenient summary of buying intentions.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Demand

135. The supply curve of an individual producer is based on the expected price in the market.

Firms are always evaluating present conditions relative to what they expect to happen in the future. Along a given supply curve, the producer has made certain assumptions about the future and if these expectations change, or are updated, then the supply of the individual producer would also change with it.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

136. According to the law of supply, there is an inverse relationship between price and quantity supplied.

The inverse relationship is a characteristic of demand. There is a positive relationship between price and quantity supplied, ceteris paribus.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

137. A decrease in price leads to a decrease in quantity supplied.

Suppliers are not willing and able to supply as much at lower prices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Supply

138. The supply curve will shift to the left if technology improves.

The supply curve will shift to the right with improvements in technology as producers are more willing and able to produce at all prices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Supply

139. The supply curve will shift to the right if the cost of factor inputs decrease.

Cost of factors is a determinant of supply; if price of factors decreases suppliers will be willing and able to supply more at all prices.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-04 Illustrate how and why demand and supply curves sometimes shift.
Topic: Supply

140. Market price is always the same as equilibrium price.

The equilibrium price represents a unique price where there are no surpluses or shortages.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

141. When a concert sells out very quickly, the market for tickets is definitely in equilibrium because the number of tickets sold equals the number of tickets demanded.

If the tickets sell quickly there are probably many people who did not get a ticket. Therefore, there is a shortage of tickets.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

142. If demand does not change, an increase in the number of sellers will cause equilibrium price to fall.

If more sellers enter the market the supply curve will shift to the right and this will cause a decrease in equilibrium price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

143. Effective price ceilings are set below the equilibrium price and cause surpluses.

Effective price ceilings are set below equilibrium price, however they cause shortages, not surpluses.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Disequilibrium Pricing

144. A policy of laissez faire relies on the invisible hand to determine prices for goods and services.

If allowed to work without interference, the market mechanism will dictate price.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Disequilibrium Pricing

145. In a market economy prices are determined by the interactions of buyers and sellers, this is referred to as the market mechanism.

The market mechanism is the working of the invisible hand. Buyer and sellers set the price without the need for direct communication.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Disequilibrium Pricing

146. Discuss the differences between the factor market and the product market.

In the factor market, factors of production are exchanged. Market participants buy or sell land, labor; or capital that can be used in the production process. In the product market there is an exchange of final goods and services. Consumers buy and businesses sell in product markets.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-01 Explain why people participate in markets.
Topic: Market Interactions

147. List the determinants of demand. Give one example that will show how a change in a determinant will cause a shift to the right. Give one example that will show how a change in a determinant will cause a shift to the left.

The determinants of demand are: tastes, income, other goods, expectations, and number of buyers. An example of a shift to the right: A story in the news says tomatoes are the new fountain of youth. Those who never ate tomatoes would enter the market causing demand to shift to the right. A shift to the left can be demonstrated by many people losing their jobs and then becoming unable to afford a home purchase. This would cause a shift to the left of demand in the housing market.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

148. What is a market shortage? Describe the results of a market shortage for the consumer and for the supplier.

A market shortage is an excess in quantity demanded over quantity supplied at the current market price. This occurs when that market price is below equilibrium price. Producers are only willing to supply a small amount to the market at the lower price while the quantity that consumers demand increases. If there is not a price ceiling then via the market mechanism, price for the item increases to equilibrium. As it does so, quantity supplied increases because more firms would be willing and able to sell at that price and quantity demanded decreases. This would continue until the shortage is eliminated and equilibrium is achieved.

AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 03-03 Depict how and why a market equilibrium is found.
Topic: Equilibrium

149. Rent controls ensure affordable rent for all who are seeking a place to live.

Rent controls will keep rents lower than the market equilibrium price but create a shortage of affordable housing.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Disequilibrium Pricing

150. Which of the following does not represent a market?

A. buyers at a garage sale

B. paying your property taxes at the courthouse

C. selling peaches at a state fair

D. a young couple shopping for a new car

151. How do limited resources affect the production of consumer goods and services?

Because resources that are used to produce goods and services are limited, some goods and services may not be produced. That will limit the availability of the products and services for consumers.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 03-05 Explain how market shortages and surpluses occur.
Topic: Equilibrium

152. Consumers are on the _____ side of the product market, businesses are on the _____ side of the factor market, and government is on the _____ side of both markets.

A. demand; demand; supply

B. demand; supply; supply

C. supply; demand; demand

D. demand; demand; demand

153. The demand curve shows what the consumer has purchased at all possible prices.

The demand curve simply demonstrates the quantities the consumer is willing and able to purchase at various prices. It does not indicate what the consumer will actually purchase or even if transactions between buyers and sellers will take place.

AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 03-02 Describe what market demand and supply measure.
Topic: Demand

154. California has experienced severe droughts thus adversely affecting its agricultural production. How could we model the outcome of these droughts?

A. The demand for California produce will shift to the left.

B. The supply of California produce will shift to the right.

C. The supply of California produce will shift to the left.

D. The demand for California produce will shift to the right.

155. Which of the following are market participants?

A. consumers

B. businesses

C. governments

D. All of these choices are correct.

156. What is the goal of a business?

A. To maximize the happiness or satisfaction provided by goods and services.

B. To maximize profit.

C. To maximize the general welfare of society.

D. To maximize revenue.

157. Supply is a measure of the quantity of a product that

A. people want to purchase.

B. businesses are willing and able to offer for sale at various prices.

C. a business sells at a specific price.

D. All of these choices are correct.

158. If the price of a product decreases, ceteris paribus, then the quantity demanded of the good will ______ and the quantity supplied will _______.

A. increase; decrease

B. decrease; increase

C. stay the same; decrease

D. decrease; stay the same

159. At the equilibrium market price, which of the following is ?

A. All buyers and sellers are completely happy with the price.

B. Quantity demanded is greater than quantity supplied.

C. Quantity supplied is greater than quantity demanded.

D. Quantity demanded and quantity supplied are equal.

160. Based on the following table, what is the equilibrium price?

A. $30

B. $25

C. $20

D. $15

161. Which of these would cause both the supply and demand curves of a product to shift?

A. Change in number of buyers.

B. Change in expectations of future prices.

C. Change in incomes.

D. Change in number of sellers.

162. Which of the following would cause both the equilibrium price and the equilibrium quantity to decrease?

A. an increase in demand

B. a decrease in demand

C. an increase in supply

D. a decrease in supply

163. Which of the following is correct?

A. A price ceiling that is below equilibrium price will result in a shortage.

B. Minimum wage laws are examples are price ceilings.

C. A price floor that is below equilibrium price will result in a surplus.

D. Rent control laws are examples of price floors.

164. Which of the following is if there is a surplus of a particular good?

A. The market price is above the equilibrium price.

B. The quantity supplied is greater than the quantity demanded.

C. The price for the good will have a tendency to rise.

D. Both the market price is above the equilibrium price and the quantity supplied is greater than the quantity demanded.