c.
shift to the left.
d.
do none of the above
97. If a decrease in the price of good Y causes the demand for good Z to decrease, this indicates that
a.
Y and Z are complements.
b.
Y and Z are substitutes.
c.
Y and Z are unrelated.
d.
the demand for Y is elastic, but the demand for Z is inelastic.
98. If air travel and bus travel are substitutes,
a.
an increase in the price of bus travel will decrease the demand for air travel.
b.
a decrease in the price of bus travel will decrease the demand for air travel.
c.
an increase in the price of bus travel will generally have no effect on the demand for air
travel.
d.
an increase in the price of bus travel will shift the demand curve for air travel to the left.
99. Which one of the following factors would increase the demand for oranges?
a.
an increase in the price of grapefruit, a substitute product
b.
a reduction in the price of bananas, a substitute product
c.
development of a line of high-yield orange trees that are also more freeze resistant
d.
a decrease in consumer income
100. A decrease in the price of milk will
a.
increase the demand for milk.
b.
reduce the demand for milk.
c.
reduce the demand for orange juice, a substitute for milk.
d.
do both a and c
101. The price of chicken increases as the result of higher beef prices. This indicates that
a.
chicken and beef are substitutes.
b.
chicken and beef are complements.
c.
the market demand for beef is inelastic.
d.
the market demand for chicken is elastic.
102. Which of the following would most likely cause the current demand for natural gas to decrease?
a.
an increase in consumer income
b.
an increase in the price of natural gas
c.
a decrease in the price of electricity, a substitute for natural gas
d.
the expectation that the price of natural gas will rise sharply next month
103. Suppose the prices of petroleum products, including gasoline and fuel oil, fell sharply. Which of the
following would most likely occur as the result of the lower prices of petroleum products?
a.
a reduction in the consumption of gasoline
b.
an increase in demand for solar heating systems
c.
an increase in demand for smaller, more efficient automobiles
d.
a reduction in the demand for home insulation products
104. Assuming Chinese food and Thai food are substitutes, if Lucy Ho’s Chinese restaurant reduces its
prices,
a.
the demand for food at Lucy Ho’s will increase.
b.
the quantity demanded for food at Lucy Ho’s will increase.
c.
the demand facing the nearby Bahn Thai restaurant will decrease.
d.
both b and c will happen.
105. Which of the following factors would cause the demand curve for a good to increase (shift to the
right)?
a.
a decrease in the price of the good
b.
an increase in the price of the good
c.
an increase in the price of a substitute good
d.
an increase in the price of a complementary good
106. Which of the following would most likely increase demand for tickets to major league baseball games?
a.
a decrease in consumer income
b.
an increase in the price of tickets to professional football games, a substitute for baseball
games
c.
an increase in the price of refreshments sold at the baseball games
d.
none of the above
107. Which one of the following would most likely increase the demand for wheat?
a.
an increase in the price of soybeans, a substitute product
b.
a decrease in the price of corn, a substitute product
c.
the development of a hybrid seed that doubles wheat yields per acre
d.
a decrease in the price of wheat
108. Two products that are usually consumed jointly would be referred to as
a.
substitutes.
b.
complements.
c.
inferior goods.
d.
unrelated goods.
109. Which of the following would most likely decrease the current demand for DVD players?
a.
an increase in consumer income
b.
an increase in the prices of television sets, a complement for DVD players
c.
an expectation that the price of DVD players would rise sharply in the near future
d.
an increase in the price of VCRs, a substitute for DVD players
110. Suppose the price of gasoline and other petroleum products declined sharply. Which of the following
will most likely occur as the result of the lower petroleum prices?
a.
an increase in demand for solar heating systems
b.
an increase in demand for larger, more powerful automobiles
c.
an increase in demand for home insulation products
d.
an increase in demand for gasoline
111. If coffee and cream are complements, an increase in the price of coffee will cause
a.
the demand for cream to increase.
b.
the demand for cream to fall.
c.
the demand for coffee to fall.
d.
no change in the demand for cream; only quantity demanded would be affected.
112. The current demand for a good would decrease if
a.
the price of a complementary good rose.
b.
the price of a substitute good rose.
c.
consumers suddenly believed the price of the good would be sharply higher in the future.
d.
consumer income increased.
113. Which of the following would most likely increase the demand for televisions?
a.
a decrease in the price of televisions
b.
a decline in consumer income
c.
a decrease in the price of home stereo systems, a substitute for televisions
d.
a decrease in the price of DVD players, a product that is complementary with televisions
114. If an increase in the price of good X causes the demand for good Y to decrease, this indicates that
a.
X and Y are complements.
b.
X and Y are substitutes.
c.
X and Y are unrelated.
d.
the demand for X is elastic, but the demand for Y is inelastic.
115. Assume that eggnog and cookies are complements. If the price of eggnog goes up, what happens to the
demand for cookies?
a.
demand for cookies increases
b.
demand for cookies decreases
c.
demand for cookies remains unchanged
d.
the shift in demand will depend on the original price of cookies
116. If salsa and nacho chips are complements, an increase in the price of nacho chips would
a.
increase the price of salsa.
b.
decrease the demand for salsa.
c.
increase the demand for salsa.
d.
have no effect on the demand for salsa.
117. An increase in the expected future price of a good will cause the current demand for the good to
a.
decrease, which is a shift to the left of the demand curve.
b.
decrease, which is a shift to the right of the demand curve.
c.
increase, which is a shift to the left of the demand curve.
d.
increase, which is a shift to the right of the demand curve.
118. A decrease in the expected future price of a good will cause the current demand for the good to
a.
decrease, which is a shift to the left of the demand curve.
b.
decrease, which is a shift to the right of the demand curve.
c.
increase, which is a shift to the left of the demand curve.
d.
increase, which is a shift to the right of the demand curve.
119. The current demand for automobiles would decrease if
a.
the price of gasoline fell.
b.
consumer income rose.
c.
consumers suddenly believed the price of automobiles would be sharply lower in the near
future.
d.
consumers suddenly believed the price of automobiles would be sharply higher in the near
future.
120. Suppose all of the major computer manufacturers announced that beginning next month there would
be major price reductions on their computers. This would cause the current demand for computers to
a.
increase.
b.
decrease.
c.
remain unchanged.
d.
increase if the demand for computers was relatively inelastic, but decrease if the demand
for computers was relatively elastic.
121. As the number of elderly consumers in a market increases and the number of younger consumers
declines, we would expect
a.
an increase in the demand for medical services.
b.
a decrease in the demand for medical services.
c.
a decrease in the demand for blue jeans.
d.
both a and c.
122. Which of the following is most likely to shift the demand curve for electricity to the left?
a.
consumers becoming more energy conscious
b.
an increase in income
c.
a decrease in the price of electricity
d.
an increase in the price of natural gas, a substitute source of energy
123. Which of the following will decrease the demand for coffee?
a.
the discovery that caffeine can cause heart problems
b.
an increase in the price of coffee
c.
an increase in the price of tea, a substitute for coffee
d.
a decrease in the prices of coffee makers and coffee cups, complements to coffee
124. The total economic cost of producing a good or service is called the
a.
comparative value of construction.
b.
social consequence of resources.
c.
marginal valuation of output.
d.
opportunity cost of production.
125. The opportunity cost of production differs from an accounting definition of a firm’s costs because it
includes
a.
expenditures the firm undertakes for research and development.
b.
the opportunity cost of assets and financial resources owned by the firm.
c.
the direct monetary cost of purchasing resources.
d.
the firm’s revenue as a cost.
126. If a firm is not covering the cost of all resources employed by the firm (including the opportunity cost
of resources owned by the firm), it will generally
a.
go out of business in the long run.
b.
remain in business as long as the current conditions are unchanged.
c.
experience an increase in its stock price because investors will be attracted to it.
d.
attempt to expand the size of its operation.
127. Profit can be defined as the
a.
difference between the sales revenue of a business firm and the opportunity cost of the
resources required to produce the goods supplied by the firm.
b.
difference between a company’s income and direct monetary costs of production.
c.
difference between the price of a product and the consumer’s valuation of the good.
d.
amount of total revenue earned by the firm minus its payments to stockholders.
128. When a firm is earning economic profit, this indicates the firm is
a.
increasing the value of the resources that it is using.
b.
reducing the value of the resources that it is using.
c.
supplying the market with a low quality product.
d.
creating less value for consumers than another firm that is currently earning losses.
129. Profits and losses play an important role in helping
a.
to signal to government which businesses are suffering losses so that they can be
subsidized.
b.
consumers decide which products they value the most by looking at each firm’s profit.
c.
to allocate scarce resources in a manner that maximizes the value created to society.
d.
ensure that the total profits in the economy exactly equal the total losses.
130. To be economically successful, the entrepreneur must
a.
combine resources in a manner that increases their value.
b.
produce a good that consumers value less than the resources used to produce it.
c.
use only personal financial capital to avoid the interest payments that would have to be
paid if the money is borrowed from the bank.
d.
transform or rearrange resources to maximize the entrepreneur’s cost of production.
131. An important assumption that is made when constructing a supply schedule is
a.
only price and quantity matter in determining supply.
b.
firms always want to sell a certain amount of a product.
c.
supply is too important to be left to the marketplace.
d.
all other determinants of supply are held constant.
e.
demand has a positive slope.
132. According to the law of supply,
a.
producers are willing to supply larger amounts of a good as its price increases.
b.
a direct relationship exists between the price of a good and the amount buyers choose to
buy.
c.
an inverse relationship exists between the price of a good and the amount buyers wish to
buy.
d.
an inverse relationship exists between the price of a good and the amount producers
supply.
133. According to the law of supply,
a.
more of a good is desired by consumers as the price falls.
b.
less of a good is desired by consumers as the price rises.
c.
more of a good will be offered by suppliers as the price rises.
d.
less of a good will be offered by suppliers as the price rises.
134. According to the law of supply, as the price of a good increases,
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.
135. The height of the supply curve at a quantity of 100 represents the
a.
total value of all 100 units to consumers.
b.
minimum price required to induce a producer to supply the hundredth unit.
c.
equilibrium price of the good regardless of the position of the demand curve.
d.
profit derived by producers from the sale of the hundredth unit.
136. Suppose the demand for nachos increases. What will happen to producer surplus in the market for
nachos?
a.
It increases.
b.
It decreases.
c.
It remains unchanged.
d.
It may increase, decrease, or remain unchanged.
137. Suppose the demand for tacos decreases. What will happen to producer surplus in the market for
tacos?
a.
It increases.
b.
It decreases.
c.
It remains unchanged.
d.
It may increase, decrease, or remain unchanged.
Table 3-2
SELLER
COST
DALE
$1,500
JILL
$1,200
DENISE
$1,000
CATHERINE
$750
JACKSON
$500
138. Refer to Table 3-2. If the market price is $1,000, the producer surplus in the market is
a.
$700.
b.
$750.
c.
$2,250.
d.
$3,700.
139. Refer to Table 3-2. If the market price is $1,100, the combined total cost of all participating sellers is
a.
$3,700.
b.
$2,700.
c.
$2,250.
d.
$1,500.
140. Refer to Table 3-2. If the price is $1,000,
a.
Denise is an eager supplier.
b.
Catherine is an eager supplier.
c.
Dale’s producer surplus is $500.
d.
All of the above are correct.
141. Refer to Table 3-2. If the price is $775, who would be willing to supply the product?
a.
Dale and Jill
b.
Dale, Jill and Denise
c.
Denise, Catherine and Jackson
d.
Catherine and Jackson
142. Refer to Table 3-2. Suppose each of the five sellers can supply at most one unit of the good; then the
market quantity supplied is exactly 3 if the price is
a.
$670.
b.
$770.
c.
$970.
d.
$1,170.
143. Which of the following events would increase producer surplus?
a.
Sellers’ costs stay the same and the price of the good increases.
b.
Sellers’ costs increase and the price of the good stays the same.
c.
Sellers’ costs increase and the price of the good decreases.
d.
All of the above are correct.
144. Which of the following events would decrease producer surplus?
a.
Sellers’ costs stay the same and the price of the good increases.
b.
Sellers’ costs increase and the price of the good stays the same.
c.
Sellers’ costs decrease and the price of the good increases.
d.
All of the above are correct.
145. Graphically, the area that represents the difference between the market price and the minimum price
required to induce suppliers to produce a good is called
a.
consumer surplus.
b.
producer surplus.
c.
marginal cost.
d.
triangular arbitrage.
146. Bill is willing to cut lawns for a minimum of $200 a week. He is, however, paid $250 for the same
service by a lawn maintenance company. This is an example of
a.
consumer surplus.
b.
employment discrimination.
c.
producer surplus.
d.
the derivation of accounting profit.
147. If Harry is paid $25,000 to sell his crop of tomatoes even though he would have been willing to have
sold the crop for as little as $20,000, this indicates that
a.
Harry received no producer surplus from the transaction.
b.
Harry received $5,000 of producer surplus from the transaction.
c.
Harry received $20,000 of producer surplus from the transaction.
d.
Harry received $25,000 of producer surplus from the transaction.
148. Ceteris paribus, an increase in the price of a good will cause the
a.
quantity demanded of the good to increase.
b.
quantity supplied of the good to decrease.
c.
producer surplus derived from the good to increase.
d.
supply of the good to decrease.
149. Ceteris paribus, a decrease in the price of a good will cause the
a.
quantity demanded of the good to decrease.
b.
quantity supplied of the good to increase.
c.
producer surplus derived from the good to decrease.
d.
supply of the good to decrease.
150. If the quantity of a good supplied is highly sensitive to the price of the good, this is illustrated by a
a.
demand curve that is relatively flat (more horizontal).
b.
demand curve that is relatively steep (more vertical).
c.
supply curve that is relatively flat (more horizontal).
d.
supply curve that is relatively steep (more vertical).
151. If the quantity of a good supplied is not very sensitive to the price of the good, this is illustrated by a
a.
demand curve that is relatively flat (more horizontal).
b.
demand curve that is relatively steep (more vertical).
c.
supply curve that is relatively flat (more horizontal).
d.
supply curve that is relatively steep (more vertical).
152. If the quantity of a good supplied is highly sensitive to the price of the good, economists say the
supply of the good is relatively
a.
inelastic.
b.
elastic.
c.
robust.
d.
inverse.
153. If the quantity of a good supplied is not very sensitive to the price of the good, economists say the
supply of the good is relatively
a.
inelastic.
b.
elastic.
c.
robust.
d.
inverse.
154. If the supply of a good is relatively elastic, this means that the quantity supplied of the good is
a.
not very sensitive to the price of the good.
b.
highly sensitive to the price of the good.
c.
unrelated to the price of the good.
d.
none of the above.
155. If the supply of a good is relatively inelastic, this means that the quantity supplied of the good is
a.
not very sensitive to the price of the good.
b.
highly sensitive to the price of the good.
c.
unrelated to the price of the good.
d.
none of the above.
156. If a large percentage increase in the price of a good results in a small percentage increase in the
quantity supplied of the good, supply is said to be
a.
horizontal.
b.
relatively inelastic.
c.
relatively elastic.
d.
income proof.
157. If a small percentage increase in the price of a good results in a rather large percentage increase in the
quantity supplied of the good, supply is said to be
a.
vertical.
b.
relatively inelastic.
c.
relatively elastic.
d.
robust.
158. If price rises, what happens to supply of a product?
a.
It increases.
b.
It decreases.
c.
It does not change.
d.
Uncertain—economic theory has no answer to this question.
159. If price rises, what happens to quantity supplied of a product?
a.
It increases.
b.
It decreases.
c.
It does not change.
d.
Quantity supplied is constant, but supply increases.
160. Corn and soybeans are alternatives that could be grown by most farmers. If government subsidies for
ethanol lead to higher corn prices, this will
a.
increase the supply of corn.
b.
increase the supply of soybeans.
c.
decrease the supply of soybeans.
d.
decrease the supply of corn.
e.
have no effect on the supplies of corn and soybeans.
161. Farmers can choose to produce eggs or milk. If there is an increase in the price of milk then what will
be the effect in the egg market?
a.
The quantity of eggs demanded will increase.
b.
Egg demand will decrease.
c.
Egg supply will increase.
d.
Egg supply will decrease.
162. When economists say the supply of a product has decreased, they mean that
a.
the supply curve has shifted to the left.
b.
the product price has decreased, and as a consequence, suppliers are producing less of the
product.
c.
producers are now willing to sell more of this product at each possible price.
d.
the supply curve has shifted to the right.
163. When economists say the supply of a product has increased, they mean the
a.
supply curve has shifted to the right.
b.
price of the product has risen, and consequently, suppliers are producing more of it.
c.
supply curve has shifted to the left.
d.
amount of the product that consumers are willing to purchase at various prices has
increased.
164. When economists say the quantity supplied of a product has increased, they mean the
a.
supply curve has shifted to the left.
b.
supply curve has shifted to the right.
c.
price of the product has risen, and consequently, suppliers are producing more of it.
d.
price of the product has fallen, and consequently, suppliers are producing less of it.
165. When economists say the quantity supplied of a product has decreased, they mean the
a.
supply curve has shifted to the left.
b.
supply curve has shifted to the right.
c.
price of the product has risen, and consequently, suppliers are producing more of it.
d.
price of the product has fallen, and consequently, suppliers are producing less of it.