The Economic Way of Thinking, 13e (Heyne)
Chapter 5 Supply and Demand: A Process of Coordination
1) According to your text, the central economic task for a society is
A) to eliminate scarcity.
B) to assure every household gets what it needs.
C) to secure cooperation among people in using what is available to obtain what is wanted.
D) to train enough economists to ensure supplies of goods and services will successfully
continue to meet demands for goods and services in the future.
2) Cooperation among people in an urban, industrialized society
A) becomes more difficult as transaction costs increase.
B) is dependent upon people having a detailed, specific knowledge of the wants and abilities of
others.
C) is impossible once the number increases beyond a few thousand.
D) requires coordination by central-planning committees.
E) will not occur unless most people approve of the goals and values of others.
3) The central problem of every economic system is to
A) to transform mere wants into genuine needs.
B) get people to cooperate effectively in using what is available to provide what is wanted.
C) get people to see that what is available is all that is necessary.
D) increase the number of jobs available.
E) redistribute income fairly.
4) Market systems are often referred to as “automatic” or “self-regulating” because they function
A) effectively even when no participant in the system plans ahead.
B) effectively in the absence of any laws.
C) effectively even when the society is breaking down.
D) without an overall, comprehensive plan.
E) without the intervention of human beings.
5) Cooperation in an economy characterized by extensive specialization requires
A) a rapid exchange of accurate information.
B) flexible government controls.
C) high unemployment to stem inflation.
D) highly trained economists to “fine-tune” the economy.
E) price controls.
6) Specialization and exchange develop under conditions of
A) massive ignorance.
B) a total conflict of interests.
C) coercion and exploitation.
D) none of the above.
7) Specialization is another word for
A) pursuing one’s comparative advantage.
B) the division of labor.
C) producing at a comparably lower opportunity cost.
D) all of the above.
E) none of the above.
8) According to Adam Smith, a well-governed society’s wealth is positively related to
A) the division of demand.
B) the division of labor.
C) the degree to which society can eliminate scarcity.
D) the degree to which society can encourage and promote greed.
9) Fill in the blank: In the economic way of thinking, ________ are the key to help people
coordinate production and consumption plans
A) abundant levels of natural resources
B) well-meaning and inspired economic planners
C) market-formed prices
D) years of training in economic theory
10) According to your textbook,
A) millions of people know how to make pencils, but only a few know how to use them.
B) millions of people know how to make pencils, but nobody knows how to use them.
C) no single person anywhere in the world knows how to make a pencil.
D) no single person anywhere in the world knows how to use a pencil.
E) none of the above.
11) How many people does it take to make an ordinary no. 2 pencil?
A) One person
B) Between one and five people
C) Less than one hundred people
D) Millions of people
12) Pencils are produced in the market economy
A) only because people need pencils.
B) only because pencil production is centrally planned, from the growing of the trees and mining
of the graphite to the final stages of pencil assembly.
C) even though the final assemblers of pencils have no idea how to produce the paint, graphite,
wood, rubber, and metal ferrules.
D) by government decree.
13) Using the economic way of thinking, what do a pencil, stick of gum, and balloon have in
common?
A) Each is produced by a single person.
B) Each is produced by a small number of people.
C) Given the state of modern technology and high-speed processing, each can soon be produced
without any human intervention at all.
D) The production of any one of the goods mentioned above requires the voluntary cooperation
of millions of producers and traders.
14) Can phenomena as diverse as pencil production and highway traffic be legitimately studied
by economists?
A) No. One is properly in the field of business, the other in city planning.
B) No. Although production is properly in the field of economics, highway traffic is only
properly studied by planners and environmentalists.
C) Yes. Both phenomena emerge from choices of individuals with limited information.
D) Yes. Both phenomena emerge in the market system without any human intervention.
15) Which of the following resources is not essential in the production of a typical cheese pizza?
A) Dough
B) Sauce
C) Heat
D) Fodder for cows
E) Trick question: all of the above are essential.
16) In the real world, how many people does it take to make a light bulb?
A) About five. One person will make the bulb, and four will watch over the person doing the
work.
B) Between ten and twenty
C) Less than forty
D) Millions
17) Under the right circumstances, what resource could be used in the production of gasoline?
A) Rosary beads
B) A telephone operator
C) Olive oil
D) Computers
E) All of the above.
18) Under the right circumstances, what resource can be used in the production of the skills of a
talented gymnast?
A) Baseball bats
B) Wheaties
C) Poetry books
D) Cigarettes
E) All of the above.
19) The “miracle” of the market, as addressed in your text, refers to the countless goods and
services of great complexity made abundantly available
A) under conditions of massive ignorance.
B) with a minimum number of errors and mistakes.
C) with few losses and bankruptcies.
D) with no systematic or scientific way of explaining how it happens.
20) The “miracle” of the market, as addressed in your text, refers to the countless goods and
services of great complexity made abundantly available
A) so everybody gets what they need.
B) so everybody gets what they want.
C) and no failures of cooperation occur.
D) even though most people do not know one another.
21) According to your textbook, it is best to view “the market” as
A) a person.
B) a place.
C) a thing.
D) a process of plan coordination among buyers and sellers.
E) a highly complicated series of exchanges, which can only be coordinated by the efforts of
economists and other experts in government.
22) When economists use the terms “supply” and “demand,” they are referring to
A) the roles economists must take to improve the economy.
B) the plans and ongoing negotiations among individual traders in the market process.
C) the ways people meet their needs in society.
D) the supply of money and the demand for money.
E) the supply of laws and the demand for laws in a well-governed society.
23) The operation of supply and demand should be thought of as a process
A) for establishing consumer sovereignty.
B) for increasing individual liberty.
C) for maximizing social welfare.
D) for maximizing total output.
E) of mutual accommodation.
24) The process of supply and demand
A) guarantees shortages or surpluses will never exist.
B) guarantees the greatest amount of social happiness.
C) ensures that people will be able to obtain all that they need.
D) generates useful information regarding the relative scarcities of goods and services.
E) accomplishes all of the above.
25) The demand curve illustrates
A) the amount of a good people need.
B) the amount of a good people want, regardless of price.
C) the amount of a good people plan to purchase at given prices.
D) the amount of a good people wish to have, but aren’t willing to pay for.
26) When the price of apples is $3 per bushel, and the quantity demanded is 1,000 bushels,
A) consumers need 1,000 bushels.
B) consumers plan to purchase a total of 1,000 bushels.
C) both A and B are true.
D) none of the above is true.
27) Quantity demanded means
A) demand.
B) the amount of a good customers need.
C) the amount of a good customers ultimately desire.
D) the amount of a good customers plan to purchase at a given price.
E) the amount of a good suppliers plan to sell.
28) A twelve pack of soda sells for $3.50. At a $3.50 price, you plan to purchase two twelve
packs. Therefore,
A) your quantity demanded is two twelve packs.
B) your demand is two twelve packs.
C) you need two twelve packs.
D) you love soda.
29) According to the law of demand, consumers will
A) change their production plans when the price of a good changes.
B) change their consumption plans when the price of a good changes.
C) change their demand when the price of a good changes.
D) increase their quantity demanded when the price of a good increases.
E) decrease their quantity demanded when the price of a good decreases.
30) According to the law of supply, producers will
A) change their consumption plans when the price of a good changes.
B) change their supply when the price of a good changes.
C) change their production plans when the price of a good changes.
D) increase their quantity supplied when the price of a good decreases.
E) decrease their quantity supplied when the price of a good increases.
31) The demand curve illustrates
A) the amount of a good consumers need to buy at given prices.
B) the corresponding supply of a good at given prices.
C) the opportunity cost associated with producing a scarce good.
D) the amount of a good consumers plan to buy at given prices.
32) The supply curve illustrates
A) the amount of a good producers plan to sell at given prices.
B) the amount of a good producers need to sell at given prices.
C) the corresponding demand for a good at given prices.
D) the sunk costs associated with producing a scarce good.
33) Quantity supplied means
A) the amount of a good consumers plan to purchase.
B) the amount of a good suppliers plan to sell at a given price.
C) the only level of output that producers can produce.
D) the same thing as “supply.”
34) A downward-sloping demand curve suggests that consumers
A) buy less at lower prices.
B) buy more at higher prices.
C) plan to buy more at a given, lower price.
D) ignore marginal benefits and only focus on the supply of a product.
35) An upward-sloping supply curve suggests that producers
A) sell less at higher prices.
B) sell more at lower prices.
C) plan to sell more at a given, higher price.
D) ignore marginal costs of production, and only focus on the demand for their product.
36) Movement along a supply curve implies
A) quantity demanded changes as the price changes.
B) supply changes as the price changes.
C) suppliers’ plans change when the price changes.
D) all of the above.
37) Your textbook uses supply and demand curves together to illustrate
A) the level of output needed by individuals.
B) the level of output needed by society.
C) how economists are necessary to make markets to work effectively.
D) how market prices play a key role in coordinating the plans of sellers and buyers.
E) all of the above.
38) According to your textbook, changes in supply and demand reflect changes in
A) society’s overall welfare.
B) the plans that buyers and sellers are making.
C) the overall efficiency of the market.
D) government policy.
E) None of the above.
39) When demand for a product increases,
A) suppliers change their plans.
B) demanders change their plans.
C) the price changes.
D) all of the above occur.
E) none of the above occur.
40) When the supply (curve) of a product increases,
A) suppliers change their plans.
B) demanders change their plans.
C) the price changes.
D) all of the above occur.
E) none of the above occur.
41) Changes in market prices tend to
A) change the plans of suppliers.
B) change the plans of demanders.
C) change the plans of suppliers and demanders.
D) have no predictable effect on anybody’s plans.
42) “Market clearing” refers to the case where
A) the purchase and sale plans of buyers and sellers are fully coordinated.
B) quantity demanded equals quantity supplied.
C) there is neither a shortage nor surplus of a good.
D) all of the above.
43) When the plans of buyers and sellers are fully coordinated
A) the market clears.
B) there is neither a shortage nor surplus of a good.
C) quantity demanded equals quantity supplied.
D) all of the above are true.
44) Market clearing means
A) quantity demanded exceeds quantity supplied.
B) quantity demanded equals quantity supplied.
C) quantity demanded is less than quantity supplied.
D) quantity demanded and quantity supplied both equal zero.
45) Suppose the market for guitars “clears” at a price of $500 per guitar. What does the above
statement mean?
A) Nothing, if an economist made the statement.
B) Guitars are no longer a scarce good.
C) The plans of guitar buyers and sellers are coordinated.
D) There is no longer a demand for guitars.
46) If the supply curve illustrates the quantities producers plan to sell at given prices, and the
demand curve illustrates the quantities consumers plan to buy at given prices, then the plans of
producers and consumers are fully coordinated at the point where
A) the supply curve lies above the demand curve.
B) the supply curve intersects the demand curve.
C) the demand curve lies above the supply curve.
D) the amount of a good needed by consumers exactly equals the amount supplied by producers.
47) In markets free from intervention, prices tend to move towards equilibrium because of
A) the “helping hand” of government.
B) increased demand from buyers.
C) increased supply by sellers.
D) the unintended consequences of choices among buyers and sellers pursuing their own plans.
48) Suppose, with a given supply and demand curve, the market for guitars would clear at $500,
but the current price of guitars is $700. Given the above information,
A) there is a shortage of guitars.
B) there is a surplus of guitars.
C) the market for guitars is fully coordinated.
D) the quantity of guitars supplied equals the quantity demanded.
49) If the price of insulin is currently above the market-clearing level, then
A) there is a shortage of insulin.
B) the market for insulin is fully coordinated.
C) there is a surplus of insulin.
D) insulin is no longer a scarce good.
50) Economists define “shortage” as
A) quantity demanded exceeds quantity supplied.
B) quantity demanded equals quantity supplied.
C) quantity supplied exceeds quantity demanded.
D) a situation whereby the prevailing price is higher than the market-clearing price.
51) Suppose the quantity of oranges demanded is less than the quantity supplied. Then
A) the market still clears, because consumers can buy all the oranges they wish at the prevailing
market price.
B) the market still clears, because producers can sell all the oranges they wish at the prevailing
market price.
C) the market clears, but is not fully coordinated.
D) oranges are no longer scarce goods.
E) none of the above is true.
52) If the quantity of gasoline supplied currently exceeds the quantity demanded,
A) there is a surplus of gasoline.
B) gasoline is no longer a scarce good.
C) the price of gasoline would tend to remain unchanged.
D) all of the above are true.
E) none of the above is true.
53) Suppose the market-clearing price of guitars is $500, but the prevailing price is currently
$700. Pick the correct statement.
A) There is a shortage of guitars.
B) Guitar sellers would not be able to successfully sell all they planned to sell.
C) Guitar buyers would not be able to successfully buy all they planned to buy.
D) All of the above are true.
E) None of the above is true.
54) Suppose there is currently a shortage in the guitar market. Pick the correct statement.
A) Quantity demanded exceeds quantity supplied.
B) Sellers could sell all they plan to sell at the current price.
C) The price of guitars would tend to increase.
D) All of the above are true.
E) None of the above is true.
55) According to your text, when a surplus exists,
A) buyers compete with buyers.
B) buyers compete with sellers.
C) sellers compete with sellers.
D) nobody has to compete because scarcity has been eliminated.
56) According to your text, when a shortage exists,
A) buyers compete with buyers.
B) buyers compete with sellers.
C) sellers compete with sellers.
D) the price of the good would tend to fall in order to eliminate the shortage.
57) If the current quantity demanded of John Deere tractors is 50,000 tractors, and the quantity
supplied is 75,000 tractors, then
A) there is a shortage of 25,000 tractors.
B) there is a surplus of 25,000 tractors.
C) there is a shortage of 125,000 tractors.
D) there is a surplus of 125,00 tractors.
58) “Lady Gaga concert sells out. 60,000 tickets sold.” What can an economist conclude from the
above headline?
A) There is a surplus of tickets.
B) The market clears.
C) The quantity supplied is 60,000.
D) The quantity demanded is at least 60,000.
E) Both C and D above.
59) If there is a shortage of gasoline, then
A) the purchase plans of buyers are not being fully achieved.
B) buyers will tend to compete amongst themselves for more gasoline.
C) the price of gasoline will tend to rise.
D) all the above are true.
E) none of the above is true.
60) A surplus is said to exist when, at prevailing prices,
A) demand is greater than supply.
B) quantity supplied is greater than quantity demanded.
C) scarcity is eliminated.
D) supply and demand are in harmonic equilibrium.
61) A surplus of peanuts implies
A) more peanuts have been produced than can be used currently.
B) peanuts are not currently scarce.
C) there is currently no demand for peanuts.
D) all of the above.
E) none of the above.
62) Are sellers always able to produce a surplus of the goods they sell?
A) No, because almost all goods are scarce.
B) Only if they can increase supply faster than demand increases
C) Only if they can prevent new uses for the good from being developed.
D) Yes, if they insist upon receiving a sufficiently high price that is above the market clearing
level.
63) The government can turn a shortage of a good into a surplus by
A) imposing a sufficiently low ceiling price.
B) offering subsidies to producers.
C) persuading producers to increase the amount of the good available.
D) supporting the price of the good above the market clearing level.
64) When shortages or surpluses persist for any extended period of time, they
A) are a consequence of failure to allow prices to perform their rationing function.
B) are evidence of an underlying imbalance between demand and supply.
C) are evidence of goods being scarce.
D) indicate that there is no price that will clear the market in the case of some goods.
65) According to your textbook, markets tend to “clear” due to
A) the use of threat and coercion.
B) the competitive bidding process.
C) the intervention of expert economists.
D) a well-managed national economic plan.
66) According to your authors, which of the following is necessary for real-world markets to
clear?
A) Supply and demand curves
B) The hard work of expert economists
C) A well-managed national economic plan
D) “Rules of the game,” which allow for competitive bidding on scarce goods
E) Nothing more than pure luck
67) The local diner is usually jammed on Saturday mornings. Luke knows the owner and had
him reserve a stool at the counter. Luke has
A) cooperated with the owner.
B) competed with other customers.
C) taken an efficient course of action, from his own perspective.
D) engaged in all of the above.
68) “30 people camp on the sidewalk in 10 degree weather for Phish reunion concert tickets, sold
only at the door.” In the economic way of thinking, the people camping out are
A) competing against other Phish fans for concert tickets.
B) taking what they believe is an efficient strategy for acquiring a scarce good.
C) planning to cooperate with the sellers of the concert tickets.
D) doing all the above.
69) According to your authors, market clearing
A) is planned by all buyers.
B) is planned by all sellers.
C) is planned by all buyers and sellers.
D) is planned by economists and government agencies.
E) is an unintended consequence of people pursuing their own plans.
70) Suppose a successful advertising campaign increases the demand for Nike shoes. Which
would tend to occur?
A) The demand curve for Nikes would shift to the right.
B) The quantity supplied of Nikes would increase.
C) The price of Nikes would rise.
D) All of the above.
71) The traditional typewriter market has collapsed over the past few decades because people
prefer personal computers. Yet, some new typewriters continue to be produced and sold at
historically low prices. How would you explain the decline in typewriter prices?
A) Typewriter producers have become less greedy.
B) The demand curve for typewriters has shifted to the left.
C) The supply curve for typewriters has shifted to the right.
D) The supply curve for typewriters has shifted to the left.
72) DVD players have become more abundant, and cheaper, over the past few years. Explain the
decline in DVD player prices.
A) DVD manufacturers have become less interested in trying to maximize their profits.
B) The demand curve for DVDs has shifted to the left.
C) The supply curve for DVDs has shifted to the right.
D) The supply curve for DVDs has shifted to the left.
73) In the 1990s, Oprah Winfrey, the former national talk-show host, discouraged Americans
from eating beef. She argued beef consumption could create major health problems, and, as a
result, beef purchases and the price of beef fell substantially. Which of the following occurred?
A) The supply curve of beef shifted to the left.
B) The demand curve for beef shifted to the left.
C) The supply curve of beef shifted to the right.
D) The demand curve for beef shifted to the right.
E) Neither the supply curve nor the demand curve for beef had changed.
74) After the September 11th attack on the World Trade Center, and with the emergence of the
anthrax scare, the price and the purchases of gas masks jumped dramatically in New York City.
In the economic way of thinking, which of the following occurred?
A) The supply curve for gas masks shifted to the right.
B) The supply curve for gas masks shifted to the left.
C) The demand curve for gas masks shifted to the right.
D) The demand curve for gas masks shifted to the left.
E) The demand curve for gas masks became upward-sloping.
75) Suppose we observe people buying more of a good even though its price has risen. What
would an economist conclude?
A) Impossible! We will never observe prices and quantity simultaneously rising in the real
world.
B) The demand curve for the good must be upward-sloping.
C) The law of demand doesn’t hold.
D) The demand curve has shifted to the right.
E) Consumption increasing as prices increase only occurs when a good is needed for survival.
76) A decrease in the supply of a good will cause a larger increase in its price
A) if there are many close substitutes for the good.
B) the greater the scarcity of the good.
C) the more elastic the demand for the good.
D) the more inelastic the demand for the good.
77) Suppose corn farmers encounter a “bumper” corn crop, which results in a significant increase
in the market supply curve for corn. Increases in supply will tend to
A) decrease the price of corn.
B) increase the demand for corn.
C) increase the price of corn.
D) decrease the demand for corn.
78) Assume foreign beer is a normal good. If the incomes of demanders increase,
A) demand for foreign beer will increase.
B) the quantity supplied of foreign beer will increase.
C) the price of foreign beer will increase.
D) all of the above will occur.
E) none of the above will occur.
79) Assume foreign beer is a normal good. If the incomes of demanders decreases,
A) the demand for foreign beer will increase.
B) the quantity supplied of foreign beer will increase.
C) the market output of foreign beer will increase.
D) all of the above will occur.
E) none of the above will occur.
80) Suppose Spam is an inferior good. If the U.S. economy hit bad times, and demanders’
incomes were to fall, which of the following would tend to occur?
A) Spam sales would increase.
B) Spam demand would decrease.
C) The price of Spam would increase.
D) Both A and C above.
E) Both B and C above.
81) Suppose Spam is an inferior good. If the U.S. economy is growing strong, and demanders’
incomes were to rise, which of the following would tend to occur?
A) Spam sales would increase.
B) Spam demand would decrease.
C) The price of Spam would increase.
D) Both A and C above.
E) Both B and C above.
82) Suppose the market clearing price for apples rises from $2.00 to $3.00 per pound, and the
overall market clearing output increases from 1 million to 2 million pounds. How can we explain
the increase in price and increase in market output?
A) Supply increased and demand remained unchanged.
B) Supply decreased and demand decreased.
C) Demand increased and supply remained unchanged.
D) None of the above.
83) Suppose the market clearing price for apples falls from $3.00 to $2.00 per pound, and the
overall market clearing output increases from 1 million to 2 million pounds. How can we explain
the fall in price and increase in market output?
A) Supply decreased and demand remained unchanged.
B) Supply remained unchanged and demand decreased.
C) Demand increased and supply remained unchanged.
D) Demand remained unchanged and supply increased.
84) Suppose the market clearing price for apples falls from $3.00 to $2.00 per pound, and the
overall market clearing output decreases from 1 million to 1/2 million pounds. How can we
explain the fall in price and fall in market output?
A) Supply decreased and demand remained unchanged.
B) Supply remained unchanged and demand decreased.
C) Demand increased and supply remained unchanged.
D) Demand remained unchanged and supply increased.
85) Suppose the market clearing price for apples rises from $2.00 to $3.00 per pound, and the
overall market clearing output decreases from 1 million to 1/2 million pounds. How can we
explain the increase in price and decrease in market output?
A) Supply decreased and demand remained unchanged.
B) Supply increased and demand remained unchanged.
C) Demand increased and supply remained unchanged.
D) Demand decreased and supply remained unchanged.
86) If the market clearing price of computer tablets rises from $400 to $600, and the market
clearing output increases from 5 million to 7 million units,
A) demand decreased and supply remained unchanged.
B) supply increased and demand remained unchanged.
C) demand increased and supply remained unchanged.
D) supply decreased and demand remained unchanged.
87) If the market clearing price of computer tablets rises from $400 to $600, and the market
clearing output decreases from 5 million to 4 million units,
A) demand decreased and supply remained unchanged.
B) supply increased and demand remained unchanged.
C) demand increased and supply remained unchanged.
D) supply decreased and demand remained unchanged.
88) If the market clearing price of computer tablets falls from $400 to $300, and the market
clearing output increases from 5 million to 7 million units,
A) demand decreased and supply remained unchanged.
B) supply increased and demand remained unchanged.
C) demand increased and supply remained unchanged.
D) supply decreased and demand remained unchanged.
89) If the market clearing price of computer tablets falls from $400 to $300, and the market
clearing output decreases from 5 million to 4 million units,
A) demand decreased and supply remained unchanged.
B) supply increased and demand remained unchanged.
C) demand increased and supply remained unchanged.
D) supply decreased and demand remained unchanged.
90) If a severe drought causes the harvest of corn to be 10 percent less than anticipated, it will
cause a large increase in the price of corn if
A) corn is scarce.
B) the demand for corn is highly elastic.
C) the demand for corn is highly inelastic.
D) the supply of corn is highly elastic.
E) the supply of corn is highly inelastic.
91) A continuing, long-term, large decline in the demand for coffee will not cause the price of
coffee to fall much over the years if
A) coffee is not scarce.
B) the demand for coffee is highly elastic.
C) the demand for coffee is highly inelastic.
D) the supply of coffee is highly elastic.
E) the supply of coffee is highly inelastic.
92) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if the price of synthetic textiles declines?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
93) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if the price of fertilizer used in cotton production increases?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply
94) What will be the principal and most immediate effect on the supply or demand for raw
cotton grown in the United States if new EPA regulation, which prohibit the use of certain
pesticides and herbicides widely used by cotton farmers, are introduced?
A) Decrease in demand
B) Decrease in supply
C) Increase in demand
D) Increase in supply