302. Refer to Figure 3-20. If 40 units of the good are being bought and sold, then
a.
cost to sellers is equal to the value to buyers.
b.
the value to buyers is greater than the cost to sellers.
c.
the cost to sellers is greater than the value to buyers.
d.
producer surplus would be greater than consumer surplus.
Figure 3-21
303. Refer to Figure 3-21. At the quantity Q3,
a.
the market is in equilibrium.
b.
consumer surplus is maximized.
c.
the sum of consumer surplus and producer surplus is maximized.
d.
the value to buyers is less than the cost to sellers.
304. Refer to Figure 3-21. At the quantity Q2,
a.
the value to buyers and the cost to sellers are both P2.
b.
the value to buyers is P2 and the cost to sellers is P3.
c.
the value to buyers and the cost to sellers are both P3.
d.
the value to buyers is P3 and the cost to sellers is P2.
Figure 3-22
305. Refer to Figure 3-22. Which of the four graphs represents the market for peanut butter after a major
hurricane hits the peanut-growing south?
a.
A
b.
B
c.
C
d.
D
306. Refer to Figure 3-22. Which of the four graphs represents the market for winter coats as we progress
from winter to spring?
a.
A
b.
B
c.
C
d.
D
307. Refer to Figure 3-22. Which of the four graphs represents the market for pizza delivery in a college
town as we go from summer to the beginning of the fall semester?
a.
A
b.
B
c.
C
d.
D
308. Refer to Figure 3-22. Which of the four graphs represents the market for cars as a result of the
adoption of new technology on assembly lines?
a.
A
b.
B
c.
C
d.
D
309. Refer to Figure 3-22. Graph A shows which of the following?
a.
An increase in demand and an increase in quantity supplied.
b.
An increase in demand and an increase in supply.
c.
An increase in quantity demanded and an increase in quantity supplied.
d.
An increase in supply and an increase in quantity demanded.
310. Refer to Figure 3-22. Graph C shows which of the following?
a.
An increase in demand and an increase in quantity supplied.
b.
An increase in demand and an increase in supply.
c.
An increase in quantity demanded and an increase in quantity supplied.
d.
An increase in supply and an increase in quantity demanded.
311. Refer to Figure 3-22. Which of the four graphs illustrates an increase in quantity supplied?
a.
A
b.
B
c.
C
d.
D
312. Refer to Figure 3-22. Which of the four graphs illustrates a decrease in quantity demanded?
a.
A
b.
B
c.
C
d.
D
313. Refer to Figure 3-22. Suppose the events depicted in graphs A and C were illustrated together on a
single graph. A definitive result of the two events would be
a.
an increase in the equilibrium quantity.
b.
an increase in the equilibrium price.
c.
an instance in which the law of demand fails to hold.
d.
All of the above are correct.
Figure 3-23
314. Refer to Figure 3-23. The movement from point A to point B on the graph would be caused by
a.
an increase in price.
b.
a decrease in price.
c.
a decrease in the price of a substitute good.
d.
an increase in income.
315. Refer to Figure 3-23. The movement from point A to point B on the graph shows
a.
a decrease in demand.
b.
an increase in demand.
c.
a decrease in quantity demanded.
d.
an increase in quantity demanded.
316. Refer to Figure 3-23. It is apparent from the figure that
a.
the good is inferior.
b.
the demand for the good decreases as income increases.
c.
the demand for the good conforms to the law of demand.
d.
All of the above are correct.
317. When competition is present and property rights protected and enforced, market prices will
a.
discourage profit-seeking business firms from producing efficiently.
b.
direct entrepreneurs toward production of goods that are inferior in quality.
c.
encourage self-interested individuals to develop skills that are expected to be valuable in
the future.
d.
always decrease.
318. The Invisible Hand Principle suggests that
a.
market prices direct individuals to produce more goods.
b.
individuals pursuing their own interests detract from the economic well-being of society.
c.
there should be stronger governmental initiatives to ensure cooperation for the betterment
of society.
d.
market forces tend to channel the actions of self-interested individuals into activities that
promote the general betterment of society.
319. The efficiency of market organization is dependent on which of the following?
a.
well-regulated supply and demand
b.
the availability of low cost resources and high tariffs on foreign imports
c.
competitive markets and well-defined and enforced private property rights
d.
Government establishment of the invisible hand principle and the inelasticity of certain
goods.
320. If the supply of a good increased, what would be the effect on the equilibrium price and quantity?
a.
Price would increase and quantity would decrease.
b.
Price would decrease and quantity would decrease.
c.
Price would increase and quantity would increase.
d.
Price would decrease and quantity would increase.
321. According to the law of supply, as the price of a good falls,
a.
buyers will buy more of the good.
b.
buyers will buy less of the good.
c.
sellers will produce more of the good.
d.
sellers will produce less of the good.
322. A movement along a demand curve
a.
is called a change in demand.
b.
is the result of a change in the price of the good.
c.
can be caused by many things.
d.
means the product is inelastic.
323. Economists would say that the demand for tacos is
a.
relatively inelastic because there are very few close substitutes available.
b.
relatively elastic because there are many substitutes for tacos.
c.
increasing because of reports of Mad Cow Disease.
d.
relatively inelastic because its demand curve is flatter.
324. Just before Valentine’s Day, the price of roses increases dramatically. This is because
a.
self-interested individuals try to charge more for a good than consumers are willing to pay.
b.
demand increases while the supply of roses remains relatively constant.
c.
the supply curve of roses is highly elastic.
d.
the demand for roses is relatively inelastic most of the year, but becomes more elastic as
demand increases.
325. If an increase in the price of peaches reduces the demand for cream, this indicates that peaches and
cream are
a.
normal goods.
b.
inferior goods.
c.
complements.
d.
substitutes.
326. Which of the following would most likely shift the supply curve to the left for Wii video games?
a.
an increase in the price of Wii video games
b.
a decrease in the price of computer chips used to make Wii games
c.
a decrease in the demand for Wii games
d.
an increase in the price of electronic components used to produce the Wii games
327. Which of the following is true of profits and losses?
a.
Profits direct entrepreneurs toward production of goods that are highly valued relative to
their cost, while losses direct them away from wealth-reducing activities.
b.
Profits indicate that the firm is charging prices that are too high, while losses indicate that
the firm needs to raise its prices.
c.
Profits indicate that the consumer is getting a bad deal, while losses indicate that the
consumer values the product highly relative to its cost.
d.
Profits indicate that the suppliers of resources are underpaid, while losses indicate they are
overpaid.
328. Which of the following would cause an increase in the price of gasoline and an expansion in the
equilibrium quantity?
a.
an increase in the price of crude oil, a key ingredient required for the production of
gasoline
b.
the introduction of a miracle carburetor that substantially improves the gas mileage of
automobiles
c.
a recession that substantially reduces the income of households
d.
an increase in the popularity and use of Sport Utility Vehicles that consume a lot of
gasoline per mile driven
329. Which of the following would lead to an increase in the demand for rental apartments in your area?
a.
a reduction in the rental price of apartments
b.
a sharp increase in the number of out-of-town students attending the local college
c.
an increase in the cost of the materials used to construct apartment units.
d.
an increase in unemployment and reduction in the income of people in your area
330. According to economic theory, which of the following would most likely cause the demand curve for
hamburgers to decrease?
a.
a drop in the price of hot dogs
b.
an increase in the price of hamburgers
c.
a drop in the price of hamburgers
d.
a technological advance that reduces the cost of making frozen hamburger patties.
331. Consumer surplus is the area on the graph
a.
above the supply curve and below the demand curve.
b.
below the demand curve and above the market price.
c.
that represents the gains that producers receive when they sell a product.
d.
that reflect the opportunity cost of producing the a good.
ESSAY
332. Suppose a person defects from Cuba (a country that generally disregards the use of markets) to the
United States and asks to see a market in action. Where would you take her? Did you give her a
complete showing of this market?
333. Two students are walking by a department store window that has on display a $400 dress. The English
major declares, “I want that dress but can’t afford it.” The economics major replies, “No, you don’t.”
Explain the logic of this reply.
334. Economists maintain that the price of a product has no effect on demand. How can this be true?
335. Susan says, “If the price of wool coats goes up, suppliers will offer more of the coats for sale.” Brad
replies, “It takes three months to harvest wool and employ all the steps necessary to produce a wool
coat. Quantity supplied cannot possibly increase for three months.” Is Brad correct? Why or why not?
336. A question on an economics exam asks, “What happens in the market for jelly when the price of
peanut butter increases?” Allison, an excellent student, shows the demand for jelly increasing. Is she
necessarily wrong? Why or why not?
ANS:
337. A terrible storm wipes out 70 percent of the peanut crop. Explain and show graphically how this will
affect the market for peanut butter and the market for jelly, a complementary good.
338. Sam lives in a town with a population of 3,000. He says, “This town really needs a pizza restaurant.
People want pizza and would be willing to pay a lot for it, but no one will open a pizza place because
they couldn’t make any money.” Evaluate Sam’s statement.
339. A recent editorial in a local newspaper argues, “Consumers need to know more about products than
just their price. They need to know how these prices are determined, who owns the businesses, and the
wages of the workers.” Is the editorial writer correct? Why or why not?
340. An agricultural economist reports that corn prices are very high this year and that corn growers are
earning substantial profits. He concludes that government action is needed to direct more farmers to
grow corn. Is such action necessary? Why or why not?
341. Around Easter time, the price of eggs rises. Some consumers complain about this and claim stores are
‘price gouging.’ Are there any positive functions played by the higher price of eggs around Easter?
What would happen if the price of eggs were not permitted to rise by law?
342. “The operator of the tunnel that links Britain and France, Eurotunnel, said that commercial and tourist
traffic using its car and coach shuttle service had fallen sharply in 2004, leading to a drop in operating
revenues of 4%. Eurotunnel’s chief executive, Jean-Louis Raymond, blamed cut-throat competition
from budget airlines.” (news story, January 2005)
a.
If Mr. Raymond is correct, are the services of airlines and Eurotunnel substitutes or
complements?
b.
Use demand and supply analysis to explain how lower airfares between Paris and London
impact the market for the shuttle services of Eurotunnel.
b.
The lower airfares shift the demand for the shuttle services to the left, leading to a reduction in
both the number of units sold and the revenues derived from the service.