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Principles of Microeconomics, 12e (Case/Fair/Oster)
Chapter 3 Demand, Supply, and Market Equilibrium
3.1 Firms and Households: The Basic Decision–Making Units
1) Michael Dell was the first individual who sold computers by mail order. The company founded by Dell
is now one of the largest and most successful computer companies in the United States. Michael Dell
would be classified as a(n)
A) entrepreneur.
B) opportunist.
C) monopolist.
D) socialist.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
2) Firms are organizations that
A) take advantage of the public.
B) transform resources into products.
C) transform outputs into inputs.
D) demand consumer outputs.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
3) An entrepreneur is a person who does all of the following except
A) assumes the risk of a firm.
B) organizes and manages a firm.
C) turns a new idea or product into a business.
D) always makes a profit.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
2
4) Why do firms engage in the activity of production?
A) to help society advance technologically
B) to participate in the circular flow
C) to acquire profits
D) to develop a supply schedule
Topic: Market Equilibrium
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
5) Mary Kay Ash was one of the first individuals who sold cosmetics directly to customers via
independent sales representatives. The company founded by Mary Kay is now one of the largest and
most successful cosmetics companies in the world. Mary Kay Ash would be classified as a(n)
A) entrepreneur.
B) opportunist.
C) monopolist.
D) socialist.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
6) Organizations that transform resources into products are known as
A) firms.
B) entrepreneurs.
C) households.
D) factors.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
7) An entrepreneur is a person who
A) assumes the risk of a firm.
B) organizes and manages a firm.
C) turns a new idea or product into a business.
D) all of the above
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
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8) The consuming units in an economy are known as
A) firms.
B) entrepreneurs.
C) households.
D) factors.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
9) Economists would classify the Boston Symphony Orchestra as a firm.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-2
10) All households have ultimately limited incomes.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Definition
Learning Outcome: Micro-1
11) Entrepreneurs are unnecessary in a market economy, and their profit is unearned.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
12) Economists would classify the New York Mets as a firm.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
13) Firms are the producing units of the economy.
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-1
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14) Most firms exist to make a profit.
Answer: TRUE
Diff: 1
Topic: Firms and Households: The Basic Decision–Making Units
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-9
3.2 Input Markets and Output Markets: The Circular Flow
1) In input, or factor, markets,
A) consumers purchase products.
B) firms supply goods.
C) households supply resources.
D) households demand goods.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
2) A factor market is
A) where goods are exchanged.
B) where resources are exchanged.
C) where goods are made.
D) organized by government.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Definition
Learning Outcome: Micro–17
3) In an output market,
A) consumers purchase products.
B) firms purchase resources.
C) households earn income.
D) land, labor, and capital may be exchanged.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
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4) Among the factors of production are
A) capital.
B) wages.
C) income.
D) all of the above
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
5) In factor, or input, markets,
A) consumers purchase products.
B) firms supply goods.
C) firms demand resources.
D) households demand goods.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
6) Resources are exchanged in ________ markets.
A) product
B) factor
C) exchange rate
D) stock
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
7) Consumers purchase products in ________ markets.
A) output
B) factor
C) resource
D) input
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
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8) Capital, labor, and land are
A) factors of production.
B) inputs.
C) resources.
D) all of the above
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
9) Factors of production are traded in the product market.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
10) Households are paid income for the resources they supply in an input market.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
11) Labor is demanded by firms in an output market.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
12) Inputs are traded in the factor market.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
13) Payment in the land market is called rent.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-3
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14) Payment in the capital market is called investment.
Topic: Input Markets and Output Markets: The Circular Flow
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro–17
3.3 Demand in Product / Output Markets
1) Which of the following is held constant along the demand curve?
A) price of the good
B) quantity
C) income
D) both A and B
Topic: Demand in Product / Output Markets
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-4
2) Which of the following will cause a shift in the demand curve for hoverboards?
A) a change in income
B) a change in wealth
C) a change in taste or preference
D) all of the above
Topic: Demand in Product / Output Markets
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-4
3) The “law of demand” implies that
A) as prices fall, demand increases.
B) as prices rise, demand increases.
C) as prices fall, quantity demanded increases.
D) as prices rise, quantity demanded increases.
Topic: Demand in Product / Output Markets
Skill: Definition
Learning Outcome: Micro-1
8
4) According to the law of demand, as prices rise, ceteris paribus
A) demand increases.
B) demand decreases.
C) quantity demanded decreases.
D) quantity demanded increases.
Topic: Demand in Product / Output Markets
Skill: Definition
Learning Outcome: Micro-1
5) According to the law of demand there is ________ relationship between price and quantity demanded.
A) a positive
B) a negative
C) either a positive or negative
D) a constantly changing
Topic: Demand in Product / Output Markets
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-4
6) As an individual consumes more of a product within a given period of time, it is likely that each
additional unit consumed will yield
A) successively less satisfaction.
B) successively more satisfaction.
C) the same amount of satisfaction.
D) less satisfaction for a while and then start to add more satisfaction.
Topic: Demand in Product / Output Markets
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-4
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Refer to the information provided in Figure 3.1 below to answer the question(s) that follow.
Figure 3.1
7) Refer to Figure 3.1. Which of the following would be most likely to cause the demand for Dr. Pepper to
shift from D0 to D1?
A) a decrease in income, assuming that Dr. Pepper is a normal good
B) an increase in the price of 7–UP, assuming 7–UP is a substitute for Dr. Pepper
C) a decrease in the price of Dr. Pepper
D) a reduction in the price of sugar used to make Dr. Pepper
Topic: Demand in Product / Output Markets
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-4
8) Refer to Figure 3.1. Which of the following would be most likely to cause the demand for Dr. Pepper to
shift from D0 to D1?
A) an increase in income, assuming that Dr. Pepper is a normal good
B) a decrease in the price of 7–UP, assuming 7–UP is a substitute for Dr. Pepper
C) an increase in the price of Dr. Pepper
D) an increase in the price of sugar used to make Dr. Pepper
Topic: Demand in Product / Output Markets
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-4
10
Refer to the information provided in Figure 3.2 below to answer the question(s) that follow.
Figure 3.2
9) Refer to Figure 3.2. Which of the following would be most likely to cause the demand for macaroni and
cheese to shift from D1 to D0?
A) an increase in the price of macaroni and cheese
B) an increase in the price of flour used to make macaroni and cheese
C) an increase in income, assuming macaroni and cheese is a normal good
D) an increase in the quantity demanded for macaroni and cheese
Topic: Demand in Product / Output Markets
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-4
10) Refer to Figure 3.2. Which of the following would be most likely to cause the demand for macaroni
and cheese to shift from D0 to D1?
A) a decrease in the price of macaroni and cheese
B) an increase in the price of flour used to make macaroni and cheese
C) a decrease in income, assuming macaroni and cheese is a normal good
D) an increase in the quantity demanded for macaroni and cheese
Topic: Demand in Product / Output Markets
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-4